Medicare drug costs should parallel those of Medicaid


Medicare should have the same authority that Medicaid has to negotiate drug prices directly with manufacturers. If the government can do it for one program, it can do it for another.

Genevieve Regal

Gail BloomIn the United States, the uncontrolled escalation of Medicare Part D prescription drug costs is a national problem. Experts predict that this price growth will continue. This presents a challenge for Medicare beneficiaries on fixed incomes.

In 2029, the total number of Americans eligible for Medicare will rise to 71 million, a surge that will push Medicare costs 4.1% higher than they were in previous decades. Because an increasing number of Medicare beneficiaries cannot afford medication therapy, the need to control the cost of Medicare Part D prescription drugs has become a national concern.

The Medicare Part D program launched in January 2006, and millions of Medicaid patients moved from state/federal Medicaid programs to Medicare Part D programs. Drug costs quickly increased, as low-income Medicaid beneficiaries were transferred to Medicare. For the same medication, patients see far higher drug prices from Medicare than they do from Medicaid. In the case of Medicaid, regulatory law requires mandatory drug-price rebates and matching of drug prices to those paid by the Department of Veterans Affairs. No such regulations cover Medicare.

In 2007 alone, according to Congressional estimates, Medicare Part D overspent by $15 billion on drug selection and delivery systems. Medicare Part D costs approximately $80 billion per year. This figure will double by 2022, as more people age into Medicare eligibility. Over the next 10 years, data project a 6.5% annual overall increase in per capita costs in Part D Rx drug spending contingent upon the specialty drug market. The 2014 Medicare drug spend was $143 billion, with $317 billion on total sales for the pharmaceutical industry.


The Medicare Modernization Act has a “noninterference” clause, which specifies the government “may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors, and may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.”

North Carolina Rep. Walter Jones has stated that "the pharmaceutical lobbyists wrote the bill. The bill was over 1,000 pages. And it got to the members of the House that morning, and we voted for it at about 3 in the morning."

Although Congress voted against granting Medicare the authority to negotiate rebates and drug prices directly with pharmaceutical manufacturers, 83% of the public supports it. However, Congress mandated that unlike Medicaid drug prices, Medicare drug prices be managed by private insurance companies that do not have the purchasing power of Medicare.

Parity pays

Medicare should have the same authority that Medicaid has to negotiate drug prices directly with manufacturers.

If Medicare had the same authority and received mandatory drug-price rebates, the federal government could save $15.2 billion to $16 billion annually. The Congressional Budget Office has concluded that drug company rebates, provided to both state and federal governments, would save $103 billion for the 9 million beneficiaries over the next 10 years. If Medicare received the same 40% rebate and pricing as the Department of Veterans Affairs Health Program, $30 billion would be saved annually.


Alternative solution

One alternative proposal would allow the Secretary of Health and Human Services (SHHS) to negotiate drug costs for biologics and expensive medications. The proposed plan would allow SHHS to negotiate prices for a limited number of these expensive medications, biologics, or any unique drugs lacking therapeutic alternatives. The proposal would include specific guidelines involving scope of authority, processes for price negotiation, pricing thresholds, formulary placement, drug market changes, and acceptable actions for handling disagreements.

This solution is a first step towards piloting a way out of the national Medicare drug problem. Medicare price negotiations must parallel those of Medicaid. All the supporting data indicate that the American people endorse such an initiative.

Medicare needs the same ability as Medicaid to negotiate drug rebates to improve spending and overall patient care. We believe that the U.S. government should have authority to negotiate manufacturer drug prices for Medicare as it has done for Medicaid, an approach that has proven effective.


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Genevieve Regal is the Director of Medicare Part D Pharmacy Operations at Capital BlueCross in Harrisburg, Penn. Contact her at Gail Bloom is a professor of health policy and health systems for several prominent universities. She provides administrative and clinical occupational therapy consultation to mental health programs and elder-care agencies.

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