FACT SHEET | January 16, 2007

Democrats Examine Ways to Lower Medicare Drug Prices

Democrats are committed to improving Medicare’s prescription drug benefit program, whether they voted for or against the legislation that created it in 2003. Democrats will re-examine the provision of current law that prohibits the Secretary of Health and Human Services from negotiating drug prices under the Medicare drug program and will explore all tools available to ensure that all people with Medicare have access to the fairest prices for their medicines.

 

Drug Prices in Medicare Are Not As Low As In Other Programs

Under the Medicare Modernization Act (MMA), drug prices are determined through negotiations between private drug plans and drug manufacturers. The federal government is expressly prohibited from interfering with these negotiations and from instituting a formulary or price structure for prescription drugs. This prohibition is commonly referred to as the “non-interference” provision. Some argue that the current drug-pricing structure in the MMA is working because the projected cost of the Medicare drug program is lower than the Congressional Budget Office and the Bush Administration previously predicted. But this argument side-steps two key questions:

1) what are the prices that drug plans have negotiated?; and 2) can alternative tools achieve lower drug prices?

After a full year of implementation, there are clear opportunities for improvement. For example, the prices negotiated by Medicare drug plans are often higher than the prices under Medicaid and the Veterans Administration. 

• Higher prices than Medicaid.Under MMA, people who are dually eligible for Medicare and Medicaid began to receive their drugs through Medicare instead of state Medicaid programs. There are reports of drug manufacturers charging more for drugs covered by Medicare than what they charged when those same drugs were covered by Medicaid. According to the New York Times, there are cases of drug manufacturers receiving “price increases of as much as 20 percent for medicines that the government was already buying for people covered under the Medicaid program for the indigent.” (November 6, 2006)
   
• Higher prices than the Veterans Administration.Prices charged by Medicare drug plans are typically higher than prices for drugs available through the Department of Veterans Affairs (VA). For each of the top 20 drugs prescribed to seniors, the lowest price charged by any Medicare drug plan is higher than the lowest price obtained by the VA. The median price difference is 58 percent. (Families USA, January 9, 2007)
   

The Senate Is Examining Ways to Lower Medicare Drug Prices

Democrats are taking quick action to address the current prohibition on the Health and Human Services Secretary from negotiating drug prices and are examining what tools will work best to keep drug prices affordable. 

The Senate Finance Committee took the first step by holding a hearing on Medicare drug pricing with expert witnesses. Bipartisan legislation was also introduced by Senators Wydenand Snowe to require the Health and Human Services Secretary to negotiate drug prices for single-source drugs and for drugs that were developed with a substantial amount of federal research funding. Under their bill, the Secretary would also be required to negotiate for drugs when requested by a Medicare drug plan and to negotiate for “fallback” drug plans.
 

Recent Criticism of Past Democratic Proposals Is Off the Mark

Some Republican lawmakers appear reluctant to consider possible ways to improve the Medicare drug benefit and are now mistakenly suggesting that previous Medicare drug proposals from President Clinton and Democrats in Congress used the same approach as the MMA to determine drug prices because they contained a similar “non-interference”provision. But the similarity of one clause does not mean past Democratic proposals took the same approach as the MMA. In fact, they were fundamentally different: they did not rely on myriad private health insurers to deliver the drug benefit and did not dilute Medicare’s negotiating power. 

The approach that President Clinton and congressional Democrats advocated would have used Medicare’s purchasing clout to select a single private entity to administer the drug benefit in each region of the country. This entity would have been selected through competitive bidding, based on its ability to achieve the best prices and provide quality service. Contracting with one entity per region would have ensured that the entity would have sufficient leverage to negotiate effectively. Because of the leverage each region’s purchasing entity would have, pharmaceutical manufacturers strongly opposed it. They recognized this approach would have been effective at achieving lower drug prices. 

The “non-interference”language was included in those Democratic proposals to make clear that the bills would not have authorized the Health and Human Services Secretary to implement a particular price structure. The approach in these Democratic bills would have had the Secretary select a private entity to administer the drug benefit, not set prices for each drug. Therefore, the inclusion of the“non-interference” language would not have hindered the drug-purchasing mechanism in those proposals.

DPC