Medicare Part D Drug Benefit: A Strong Candidate for Government Reform

By: Clarissa Crain, CIS Senior Compliance Specialist
clarissacrain@cis-partners.com

On January 1, 2006, the Medicare Part D Program was launched in order to provide Medicare eligible patients with access to prescription drugs. The intent of the program was to lower prescription drug costs witnessed by Medicare patients, and thereby ensure that patients in need had access to necessary drugs.[i] However, a little over three (3) years after its launch, the Medicare Part D program is under intense pressure to change.

Millions of elderly Americans gained access to needed drugs through Medicare Part D; however, lawmakers claim that this access is coming at a cost above that which the taxpayers should incur. This claim is illustrated by considering the case of Medicaid-Medicare Dual Eligibles.

Dual Eligibles are defined as individuals entitled to Medicare coverage, as well as some level of Medicaid assistance.[ii] Prior to the 2006 implementation of the Medicare Modernization Act (2003), Dual Eligibles received pharmacy benefits through state Medicaid programs. However, upon the launch of Medicare Part D prescription drug coverage program, these patients were transferred to Medicare Part D for their pharmacy benefits.

Today there are approximately 6 to 8 million individuals that fall within the category of Dual Eligibles, representing 40% of the nation’s Medicaid spending and 25% of the nation’s Medicare spending. Recent analysis shows that spending on Dual Eligible pharmacy benefits has increased a dramatic 30% since the enacting of the 2003 MMA. This is largely attributed to the higher drug costs witnessed by the Medicare Part D program, as opposed to the Medicaid Drug Reimbursement Program (MDRP). Because Medicare Part D benefits are not administered through the federal government, they do not witness the same ‘best prices’ provided through MDRP.[iii]

Lawmakers, such as Chairman of the House Energy and Commerce Committee Henry Waxman, point to this rapid increase in spending, and question whether Part D plans are getting the best discounts for Dual Eligibles. By referencing research showing that price discounts provided to Part D plans are much less substantial than price rebates through MDRP, Waxman seeks to introduce legislation requiring that Medicare receive the same level of discount witnessed by MDRP. Calling the current model of Dual Eligible coverage an opportunity for pharmaceutical manufacturers to witness “windfall revenues,” Waxman notes that the increase in cost is a direct result of statutory laws written by Congress.

The example of Dual Eligibles allows for a side-by-side comparison to Medicaid coverage; however, it can be deduced that costs witnessed for patients covered only by Medicare Part D are also above the government’s intended rates. As the new administration continues to push towards universal health care coverage, while also battling a recessed economy and budget shortfalls, Medicare Part D and Dual Eligible coverage will not be left unaffected. However, legislative changes in the Medicare Part D program are likely to go beyond changes in Dual Eligible reimbursement/pricing, by focusing on pricing witnessed throughout the Part D program.

When Part D was originally launched it was believed that the competitive, privatized market would drive down costs, yet that intention has not been realized to the extent the government had hoped (see Dual Eligibles example above). Instead, reformers call for a move away from Medicare Part D privatization, allowing the government to negotiate directly with manufacturers on pricing – thereby utilizing the government’s buying power to drive down cost. Other suggestions include a formulary similar to that in place for the VA program, or the utilization of AMP or ASP prices to develop rebate/pricing structures.[iv] Regardless of the avenue through which reform is made, it is coming.

Sources:
[i] Medicare Program-General Information. http://www.cms.hhs.gov/MedicareGenInfo/.
[ii] Overview. Medicare / Medicaid Dual Eligibles. http://www.cms.hhs.gov/DualEligible/01_Overview.asp#TopOfPage.
[iii] Analysis of Dual Eligible Pharmacy Costs Under Medicaid and Medicare Part D. http://www.communityplans.net/Portals/0/ACAP%20-%20Dual%20eligible%20pharmacy%20analysis%20final%20091808.pdf.
[iv]Medicare, Medicare Advantage, and Part D: Likely Policy Changes in 2009 and 2010. http://www.piperreport.com/