The Privatized Medicare Drug Benefit: Higher Costs and Dangerous Gaps in Coverage

Supporters of the privatized Part D benefit and opponents of a public health insurance option being made available to everyone as part of national health care reform, have made much of reports that revised estimates of the Part D benefit's cost are lower than initial projections.

In fact, a recent op-ed in The Washington Post used this misinformed belief to argue against the need for a public health insurance option, claiming that:

"While prescription drugs are not a perfect comparison, the experience of competing plans in the Medicare prescription drug arena suggests that a government-run option is not essential to energize a competitive system that has turned out to cost less than expected."

This twisting of the facts ignores actual initial predictions, which were less than half of CMS' later projections. They focus instead on a slight drop in the estimated cost in later projections (see chart below).

The principal causes of those "savings," however, were the national dampening of prescription drug inflation—independent of Part D—and lower-than-projected enrollment in the Part D benefit; not that the private Part D plans had done a good job of negotiating lower drug prices.

On the contrary, evidence shows that the prices negotiated by the private Part D plans are substantially higher than prices that government-run programs like the Department of Veterans Affairs (VA), Medicare Part B, Medicaid and those in other countries are able to obtain for their patients. The private plans' inability to secure better prices has meant higher costs for people with Medicare and for taxpayers.

Some examples:

• A study from the universities of Chicago and Georgetown found that private Medicare Part D plans could not get a better price than the public Medicare program gets for the same drugs covered under Part B.


• A report by Families USA, found the Veterans Administration (VA) had lower prices on all the top 20 drugs used by older adults than the prices charged by the Part D plans with the highest enrollment. For half of the drugs studied, the lowest price available under a Part D plan was at least 58 percent higher than the price charged by the VA. Yet the lower VA prices do not mean restricting access to medically necessary drugs to Veterans. The VA has 4,778 separate drugs on its formulary, approximately 478 more than the average of 4,300 drugs covered by Medicare Part D plans. In addition, in 2006, the VA dispensed prescriptions for 1,416 drugs not on the VA formulary.


• A report by the House Committee on Government Reform and Oversight found that when dual-eligibles were switched from Medicaid prescription drug coverage to a private Medicare drug plan, their prescription drugs cost 30 percent more under the new private Medicare drug plans than they did under Medicaid, increasing pharmaceutical companies' profits by at least $3.7 billion dollars in just the first two years of the program.


• The Congressional Budget Office projects that if drug manufacturers were required to give Medicare Part D plans the same rebates they give the Medicaid program, the federal government would save $110 billion between 2010 and 2019.


• Dean Baker of the Center for Economic and Policy Research estimated a potential savings of $42 billion in just 2006 if the Part D benefit had been able to secure the prices negotiated by the Australian government, which uses a national formulary to leverage lower prices in the same manner as a Medicare-run drug benefit could operate.

For such high costs, you would think everyone enrolled in a Medicare Part D plan gets all the medications they need without problem. Unfortunately, you would be wrong. There is wide variation in which drugs the Part D plans will cover, what restrictions they will place on coverage and what differential cost-sharing they will impose on different drugs, as well as substantial failures to cover medically necessary drugs. Various studies show that this variation results in coverage denials and gaps in coverage that impair access to medically necessary drugs.

Some examples:

• A study by Avalere Health and the American Cancer Society found that Medicare stand-alone prescription drug plans (PDPs) have been increasingly shifting more of the cost of name-brand oral cancer drugs to the patient. For example, 84 percent of PDP enrollees are in plans that put Gleevec, a name-brand drug used to treat leukemia and other forms of cancer, on their most expensive tiers in 2009, up from 39 percent in 2006.


• A survey their members by the HIV Medicine Association and the American Academy of HIV Medicine found that 83 percent of respondents said that their patients had trouble getting their medicine from their Medicare private drug plan.


• A survey of U.S. psychiatrists by the American Psychiatric Institute for Research and Education found 53.4 percent respondents said their patients with Medicare and Medicaid had problems getting their medications from their Part D plans. The Institute's study found that almost one out of four patients stopped taking their medication as a result of a problem obtaining it under their Part D private plan endangering the lives of over a quarter of the patients. Researchers found that patients forced to switch medications had the highest rates of hospital emergency room visits.

Is this what you want out of health care reform? Only if your goal is to keep insurance and pharmaceutical company profits high. If your goal is to ensure everyone has access to quality, affordable health care when they need it, then you should demand that a public health insurance plan option be part of any health reform package.

05-01-09 By Monica Sanchez | Comment (2)