Part D price controls trigger new arguments in hearing

September 15, 2008

Controversy continues in Congress over Medicare Part D price controls.

Key Points

Rep. Henry Waxman (D-Calif.) charged in a July 24 hearing, "In effect Medicare Part D has given the major drug companies a taxpayers-funded windfall worth billions of dollars."

The administration responded that Medicaid's system of rebates to federal and state governments for drugs make that system very different, and such a system is not suitable for Medicare Part D.

The report stated that the committee obtained confidential information from the 10 largest Part D insurers on expenditures for dual eligibles and confidential information on Medicaid drug prices from manufacturers. For the top 100 prescription drugs used most often by dual eligibles, the report said, Part D paid $16.2 billion in 2006 and 2007. Part D would have covered $12.4 billion in drug costs if it had paid the prices paid by Medicaid, the report asserted.

Kerry Weems, acting administrator of the Centers for Medicare and Medicaid Services, objected at the hearing, saying that according to the Congressional Budget Office, the average basic Medicaid rebate on brand drugs is 22 percent of the average manufacturer price. That "would make the rebate larger than a Part D plan's liability in the catastrophic portion of the Part D benefit, and having a rebate larger than a plan's liability could seriously distort the incentive for plans to manage costs in that portion of the benefit."

Further, he said, comparing the prices on the same drugs does not capture other Part D efficiencies such as encouraging "use of generics and lower-cost drugs, cost-sharing opportunities for co-payments and coinsurance, and improved healthcare outcomes."

Like many other issues considered in Congress before the August recess, the discussion is likely not targeted on immediate changes but is laying groundwork for next year with the new administration and Congress.

However, Waxman said he will soon introduce legislation to guarantee that Medicare Part D prices for dual eligibles are not higher than Medicaid prices, which he stated could save almost $90 billion during the next 10 years. Even more could be saved, he asserted, if the federal government could negotiate Part D prices for all Medicare beneficiaries.Arguments among expert witnesses and the Congressional representatives at the hearing moved quickly into economic complexities. Rep. Tom Davis (R-Va.), ranking minority member of the committee, said the difference in prices under the two programs "buys dual-eligible seniors access to drugs not available under Medicaid's more restrictive pharmacy rules. And capturing the alleged 'savings' would be short-lived and painful."

He contended that other segments of the economy, such as employers' plans, union plans, and payments for the uninsured, "would then absorb the cost shifts that are inevitably generated by price controls."

Davis also emphasized the argument that a government process to set Part D prices would turn into a political exercise, with various groups lobbying for higher payment levels.

Testimony and other information is on the website http://www.oversight.house.gov/, under hearings.