CMA Weekly Alert – Prescription Drugs Cost More Under Medicare Part D Than Under Medicaid

The Centers for Medicare & Medicaid Services reports that “lower drug costs and strong competition have reduced the price tag for Medicare’s new drug coverage.”  CMS, “Lower Costs of Medicare Drug Coverage to Help States Save $700 Million in 2006,” (News Release, Feb. 9, 2006).  To the contrary, shifting the costs of prescription drugs from Medicaid to Medicare for dually-eligible beneficiaries has raised the costs of prescription drugs for government payers.

Say what?

Stephen W. Schondelmeyer, Professor of Pharmaceutical Management & Economics at the University of Minnesota, testifying at the House Committee on Government Reform’s Minority Briefing on Implementation of the New Medicare Drug Benefit (January 20, 2006), reported that state Medicaid drug rebate programs provided “minimum rebates of 15 percent or more and additional rebate payments for best price and inflation adjustment over time,” leading to total rebates for states of 20-30% of drug costs.  These Medicaid rebates were lost when payment for prescription drugs shifted to Medicare.  Although prescription drug plans (PDPs) may negotiate rebates with pharmaceutical companies, the government will not benefit from these rebates unless the PDPs pass their savings on to consumers.  So far, that has not happened.

Professor Schondelmeyer examined the prices for the 25 top prescribed brand name drugs that were offered by all 41 PDPs in one Minnesota zip code during the first two weeks of 2006.  He found that Medicare prices were 14% -50% above prices that Medicaid would have paid and that most of the Medicare prescriptions were 20%-30% above Medicaid prices.  Medicare prices were generally within plus or minus 4% of the typical retail price.

Professor Schondelmeyer described additional design features that are policy failures, rather than implementation problems that will be cured over time.  He testified, for example, that multiple PDPs will be unlikely to negotiate lower prices than the single Medicaid program in each state.  “This smaller volume and diminished market power for the many PDPs is not likely to generate discounts and rebates from manufacturers that approach the historical rebate levels specified under the Medicaid program.”

Ed:  Now that’s a shocker!  Congress hands over Medicare Part D to the private sector, prohibits CMS from negotiating discounts for beneficiaries, and prices go up? Who would have guessed?   Read the rest of this news alert prepared by the Center for Medicare Advocacy.