An analysis of confidential data on Medicare Part D and Medicaid drug prices by the majority staff of the House Committee on Oversight and Government Reform reported that private Medicare Part D insurers pay significantly higher prices for prescription drugs than does the Medicaid program. According to the committee report, for the six million dual eligible beneficiaries, the Part D insurers paid $3.7 billion more in 2006 and 2007 to purchase the top 100 drugs than they would have paid if they had access to the lower Medicaid drug prices. Eliminating this drug manufacturer windfall over the next 10 years would save taxpayers $86 billion if the Medicare Part D insurers paid Medicaid prices for drugs used by their dual eligible beneficiaries.
At a July 24, 2008, hearing, Committee Chairman Henry Waxman (D-Calif.) said drug manufacturers have been paid billions more for the drugs used by the dual eligible beneficiaries than they would have been paid if their coverage had remained under Medicaid. He announced that he plans to introduce legislation to prevent taxpayers from paying for these higher drug costs. Waxman noted that the committee found out last October that the private insurers that deliver the Medicare drug benefit are charging taxpayers and beneficiaries $4.6 billion in administrative costs annually. “The Part D program is exceptionally lucrative for the private health insurers,” he said.
Price comparison
The majority staff reports, that in 2006 and 2007, the private Part D insurers spent $18.7 billion to purchase the top 100 drugs for dual eligible beneficiaries. If the private Part D insurers had paid the same prices as Medicaid, their total cost for the drugs used by the dual eligible beneficiaries would have been $12.4 billion. The price increases were especially large for the drugs on CMS' "protected list," such as anti-depressants, anti-psychotics, and AIDS drugs, that CMS requires all Medicare Part D plans to offer. For the 16 drugs among the top 100 that are on the protected list, the private Medicare Part D insurers obtained rebates and discounts of only 7 percent, paying almost 40 percent more for these essential medications than Medicaid pays.
Windfalls
According to the report, there are 29 large drug manufacturers who produce the 100 drugs used most often by dual eligible beneficiaries. In total, these manufacturers received $3.7 billion more from the Medicare Part D insurers in 2006 and 2007 than they would have received if the dual eligible beneficiaries had obtained the drugs through Medicaid. Each of nine drugs generated over $100 million more in revenues under the Medicare Part D program than they would have generated had Part D insurers been able to get the same discounts that Medicaid gets.
Cost-saving estimates
Taxpayers presently pay over 98 percent of the drug costs under Medicare Part D. Dual eligible beneficiaries are expected to use $432 billion worth of drugs over the next 10 years. If drug manufacturers provided the Medicare Part D program with the same prices that Medicaid receives, these drug costs could be reduced by as much as $86 billion. If Medicare Part D paid the same price as Medicaid for all drug purchases, the total savings to the taxpayer over the next ten years could be as much as $156 billion. Beneficiaries could also save up to $27 billion.
Source: CCH Washington Bureau, July, 2008.
For more information on this and related topics, consult the CCH® Medicare and Medicaid Guide.
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