Drug companies have wildly increased prescription prices in recent years. From 2002 to 2007, prescription drug prices increased by 50 percent, more than 2½ times faster than inflation. [AARP] Eight in ten Americans think that the cost of prescription drugs is too high, and four in ten report struggling to pay for medication prescribed by their doctors. [Kaiser Family Foundation] Twenty-nine percent of Americans go without prescribed medication due to its cost. [Kaiser Family Foundation]
The law that created Part D Medicare prescription drug benefits prohibits price negotiation by the government. The law, enacted in 2003, after an incredible lobbying blitz by drug companies, states that the Secretary of Health and Human Services “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.” 42 U.S.C. 1395w-111(i). This part of the law was a giveaway to drug industry lobbyists written in part by Rep. Billy Tauzin, who later took an extremely lucrative position as the CEO of PhRMA, the drug industry’s lobbying group. [New York Times]
Medicare is the only federal program that doesn’t negotiate a fair price for prescription drugs. The Department of Veterans Affairs, the Department of Defense, the Public Health Service, the Bureau of Prisons, and other federal agencies all buy drugs at negotiated prices. Prices for drugs purchased under Medicaid, which is a joint federal-state program, are also aggressively negotiated. But Medicare Part D drug prices are handled by more than 2,000 private insurance plans. [Kaiser Family Foundation]
Because federal negotiation is prohibited, elderly Americans are being overcharged billions of dollars. Agencies that negotiate get much better drug prices than the private Part D insurance plans do. The Department of Veterans Affairs, for example, pays only about 42 percent of the list price for brand-name prescription drugs. [CBO] If Medicare was allowed to negotiate with manufacturers, the program would save approximately $90 billion a year, which could be passed along to the elderly in the form of lower costs or greater benefits. [Center for Economic and Policy Research]
A majority in both the U.S. House and Senate favor negotiation of prescription drug prices but the legislation was killed by a conservative filibuster. A bill to allow the Medicare program to negotiate prescription drug prices was considered in both the U.S. House and Senate in early 2007. The House passed the bill, HR 4 by a vote of 255 to170. But Senate conservatives killed the measure by using a filibuster to block a final vote. Advocates fell 5 votes short of the 60 Senators needed to overcome the filibuster against S.3.
The Argument
Seniors who get their drugs from the Part D program should pay a fair market price for prescription drugs. Virtually every government or private organization that purchases prescription drugs tries to negotiate the best prices possible—except for the private drug provider plans created under Medicare. The current system gives drug companies an inflated price. They should instead be paid a fair, negotiated price.
Because Medicare is overcharged for drugs, the elderly suffer. If Medicare paid a fair price, the savings could be passed along to the elderly in the form of lower costs or greater insurance benefits. Because drug prices are inflated, many Americans are forced to cut pills in half, skip doses, or go without. It’s time for us to put American seniors’ health above drug companies’ profits.
Drug companies don’t need more money—but elderly Americans do. The pharmaceutical industry is the third most profitable industry in the world, according to Fortune Magazine. With prices of food, gasoline, and other necessities rising, all Americans—especially Medicare beneficiaries—need financial relief.
Progressive Solutions
Amend the Medicare Modernization Act to require the Secretary of Health and Human Services to negotiate fair prescription drug prices. Or create a real Medicare prescription drug plan (one actually run by Medicare) that forces drug companies to compete to provide drugs at the lowest price. Lowering Medicare drug costs – and reducing the influence of the drug industry-- is an important first step to bringing skyrocketing prescription drug and health care costs under control for all Americans.
With prices for some prescription drugs increasing over 100 percent in just one year, it's time to renew the fight to give Medicare the power to power to negotiate lower drug prices for seniors in its Part D program. An overwhelming majority of Americans want this, but President Bush, Sen. John McCain and congressional conservatives still won't support this commonsense reform. It's time to call them on it. Here's how.
Medicare Part D's drug prices are the only federal program that doesn’t negotiate a fair price --its prices are handled by more than 2,000 private insurance plans. Yet, Medicaid, the Department of Veterans Affairs, the Department of Defense, the Public Health Service, the Bureau of Prisons, and other federal agencies all buy drugs at negotiated prices.
“if the federal government begins picking drugs and setting prices for all Medicare beneficiaries, administrative costs would add a new burden to taxpayers.”
The government's administrative expense to run the Medicare program accounts for only 3% of Medicare spending. By contrast, the amount of every premium dollar retained by private insurance companies for marketing, administration and profit is 14%. The CBO has projected that the marketing and the profits of the insurance industry would add $38 billion in costs in the first seven years of the program compared to a benefit that was administered through Medicare.
Question to ask: "Why was Part D designed to hit seniors and taxpayers with such high and unnecessary administrative costs?
"Medicare For All: Quality, Affordable, Health Care for All Americans,” by the Senate Committee on Health, Education, Labor, and Pensions. Retrieved on December 14, 2007, from http://energycommerce.house.gov/medicare/M4A_factsheet.pdf.
Congressional Budget Office, 2004a. “A Detailed Description of CBO's Cost Estimate for the Medicare Prescription Drug Benefit,” Washington, D.C.: Congressional Budget Office, Table 3. Retrieved on December 14, 2007, from http://www.cbo.gov/ftpdoc.cfm?index=5668&type=0&sequence=0.
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The 1,300 drugs on the Veterans Administration formulary account for the vast majority of prescriptions that are filled by people on Medicare - and Veterans can still get the drugs not on the VA formulary. They just need to have their doctor explain why they need the drug in question.
Additionally, no plans in the Medicare program cover all 4,300 FDA approved drugs. These plans have preferred drugs as well, which is why the typical beneficiary had to spend 8 hours last year sifting through the various options, according to a study done for the Medicare Payments Advisory Commission. Seniors with many drug needs presumably spent even more time.
Question to ask: Why has the VA received significantly higher marks than private health care in independent surveys of customer satisfaction for the past 7 years?
"VA Health Care System Outscores Private Sector Again," the Veterans Administration, January 10, 2007. Retrieved on December 14, 2007, from http://www1.va.gov/opa/pressrel/index.cfm.
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“The federal government has nowhere near the market power of the private sector. Private-sector insurance plans and pharmacy benefit managers, which negotiate prices between drug companies and pharmacies, cover about 241 million people, or 80 percent of the population. Medicare could cover at most 43 million.
”
The total size of the private sector doesn't matter. It does not negotiate with drug companies as a sector—which is why we need Medicare to do it. The thousands of different private insurance plans that negotiate individually are far less effective than Medicare could be.
Also important is that Medicare-covered elderly have higher prescription drug use. For example, people 75 years of age and older take an average of 7.9 prescribed drugs per person per day.
Question to ask: If Medicare can't negotiate for lower drug prices as well as the private plans, why is the prescription drug lobby spending so much money fighting against allowing Medicare to do just that?
The largest U.S.-based drug companies spent more than twice as much on marketing, advertising, and administration as they spent on R&D (32% percent versus 13.9% of revenues), and they retained more in profits than they spent on R&D (17.4% versus 13.9%).
Question to as: Doesn't this directly contradict their other claims that negotiating for lower prices will be ineffective?
The costs are lower than expected mainly because millions of expected enrollees have decided that the Medicare drug program is not a good deal and haven't signed up - giving more reason to fix Part D and make it simpler and cheaper.
Question to ask: If the costs are already so low, why is PhRMA spending so much money fighting this proposal?
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