publication date: Aug. 7, 2015

Report: Part D Drug Prices “Needlessly High”

Medicare’s Part D program paid significantly higher prices for drugs than either Medicaid or the Veterans Health Administration, a study by Carleton University and Public Citizen found.

Prices paid by Medicare Part D were also above those in 30 other countries.

The price is caused by congressional restrictions on the federal government’s ability to negotiate with the pharmaceutical industry, the study said.

As a result, government agencies of 27 other countries that are part of the Organization for Economic Co-operation and Development were able to purchase the medications studied from manufacturers at less than 50 percent of the U.S. purchase price.

The study compared prices paid to manufacturers for a standardized group of brand-name medications in the 31 OECD countries, including the U.S.

The study was conducted by Marc-Andre Gagnon, an associate professor at the School of Public Policy and Administration at Carleton University in Ottawa, and Sidney Wolfe, co-founder and senior adviser of Public Citizen’s Health Research Group.

Medicare Part D was implemented in 2006 to broaden pharmaceutical coverage for seniors 65 and older and for people with disabilities. It is the largest federal drug program, covering 39.1 million people and spending $69.3 billion on prescription medications in fiscal year 2013. Approximately 58 percent of Medicare Part D spending is paid to brand-name manufacturers, according to the study.

“Medicare Part D was designed less as a system for social protection for the sick and more as a system of corporate welfare for brand-name pharmaceutical companies,” Wolfe said in a statement. “Lower prices would alleviate the current de facto rationing that occurs because so many Medicare recipients cannot afford these inordinately high prices and suffer the health consequences of cost-related non-adherence to drugs prescribed for them. That’s just wrong.”

Medicare Part D is not allowed to “interfere with the negotiations between drug manufacturers and pharmacies and [Part D plan] sponsors,” according to the law that created it.

“We thought that brand-name medicines were a little bit more expensive for Part D, but we never thought that it would be twice as much as in other developed countries,” Gagnon said. “It is like pouring money down the drain.”

Lowering Medicare Part D prices to Medicaid or VHA levels could save Medicare between $15.2 billion and $16 billion a year and reduce the number of people who don’t fill their prescriptions for financial reasons, the authors say.

“Based on this information, we urge that a joint House-Senate Committee be formed to draft legislation that would lower Medicare Part D prices,” Gagnon and Wolfe wrote in a letter to Sen. Bernie Sanders (I-Vt.) and Rep. Rosa DeLauro (D-Conn.) July 23.

Proposals to fundamentally alter the structure of the “successful” Medicare Part D program would hurt both taxpayers and beneficiaries, PhRMA, the industry lobby group, said in a statement to The Cancer Letter.

“Part D program has been widely successful, keeping total costs low—$349 billion lower than initial CBO 10-year projections—through plan competition and negotiation,” PhRMA said. “Robust negotiation occurs in Medicare Part D between plans and biopharmaceutical companies, resulting in substantial rebates, often as much as 20 to 30 percent, with average rebate levels increasing each year of the program.

“Further, spending on retail prescription medicines has consistently accounted for just 10 percent of U.S. health care spending and is expected to remain stable through the next decade, compared with other OECD countries that spend a higher percentage of their health care dollars on prescription medicines.

Proposals that could jeopardize beneficiaries’ access to medicines by driving up premiums, reducing choice and restricting coverage are misguided and misplaced.”

 

Comparing Prices

Overall, U.S. costs per capita for pharmaceuticals ($1,010) are more than twice as high as the OECD average ($498) and more than threefold those of New Zealand, Denmark and Israel.

According to the study, Medicare Part D spends 198 percent, almost twice the median, of the amount paid for brand-name medications in the 31 OECD countries. Medicare Part D pays on average 73 percent more than Medicaid and 80 percent more than the VHA for brand-name drugs.

Under current Part D pricing, new “me-too” drugs similar to older drugs are priced just as high or higher.

“The rationale for higher prices is supposedly to help pay research costs for innovative products,” Gagnon said. “By paying for ‘me-too’ drugs at such high prices, not only do Part D beneficiaries not get value for their money, they end up providing incentives to develop me-too products to the detriment of innovative medicines for unmet needs.”

According to the study, proponents of the status quo argue that pharmaceutical R&D investment will “flee abroad” if any country enacts regulations to reduce prices.

“For many years, higher price levels often were cited as an important policy lever for attracting R&D investment,” the authors wrote. “Drug companies argued that if they could not obtain high prices in a country, they would move their R&D out of the country.”

Domestic and international data have not supported this link, the study’s authors said.

“Several countries that have patented drug prices which are, on average, substantially lower than in the U.S., have achieved domestic R&D-to-sales ratios (a standard index to measure R&D intensity) well above those in the U.S.,” Gagnon and Wolfe wrote. “Increasingly, analyses show that the impact of drug prices on companies’ decision on where to invest and conduct research are, at best, of marginal importance.

“Other factors—such as where companies can find the best science base at reasonable cost, taxation incentives, flexible labor markets and economic stability—are seen as having greater importance in companies’ decisions than drug prices.

“There is no reason to believe that Medicare Part D price reductions would cause a flight of pharmaceutical R&D investment outside the country.”

Besides lowering Part D prices, Gagnon and Wolfe recommend introduction of mandatory generic substitution for all plans under Part D, and that price reductions be used to reduce co-payments and deductibles.

“To preserve freedom of choice, patients wanting access to treatments that are more expensive than equivalent, equally safe and effective treatments covered under Medicare Part D should have the opportunity to access these treatments, but they should have to pay the price difference out-of-pocket,” Gagnon and Wolfe wrote.

“Given the complex nature of this issue, it is recommended that members of Congress create a joint working group to investigate the ways and means of implementing the recommended reforms.

“The mandate of this working group should not be if the structure and pricing for Medicare Part D drugs should be reformed, but how they should be reformed to ensure the greatest benefit to the American people.”

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