Medicare "Negotiation" is a Farce that Can Hurt Patients
by Larry Hausner
Oct 14, 2015 | 6003 views | 0 0 comments | 41 41 recommendations | email to a friend | print
Taxpayers are being raked over the coals by high prescription drug prices - or so says Senator Ron Wyden (D-OR). Claiming that the Medicare prescription drug insurance program, known as Medicare Part D, is "unsustainable," he called for federal intervention to curb "skyrocketing drug costs."

The senator is potentially overstating the case. A new report from the agency that oversees Medicare shows that Part D premiums have not substantially changed in the last five years. In fact, lawmakers should seek to protect the program, not undermine it. In this there is no dispute with Senator Wyden.

Established in 2006, Part D provides insurance to 37 million seniors, enabling them to afford the life-saving drugs that keep chronic diseases at bay, thus reducing the number of costly hospitalizations and surgeries. The program has cost $350 billion less than initially projected and about 90 percent of beneficiaries rate the program positively.

That satisfaction is largely due to stable premiums. Next year's average monthly Part D premium will be just $32.50, virtually the same as this year's rate.

Seniors aren't the only ones benefiting from affordable premiums, taxpayers save money too. Again, by increasing access to medicines, Part D keeps people healthier and out of the hospital. That cuts overall Medicare spending by $12 billion per year. Improved access to heart disease medications alone saves Medicare over $2 billion annually.

Part D owes its success to its competitive, market-based structure. Insurers compete with one another to attract customers by providing the best plans at the lowest cost. Insurers and pharmacy benefit managers can offer these low rates because they negotiate large discounts from drug companies, who lower their prices to ensure their medications are covered.

Lawmakers like Senator Wyden believe that the government could save Part D money by negotiating even larger discounts than those achieved by private insurers. Government officials are currently prohibited from interfering in the negotiations between private insurers and drug makers.

This sounds nice in theory, after all, who wouldn't like to lower the cost of Medicare even further? Unfortunately, government price negotiations wouldn't necessarily improve Part D.

Pharmaceutical firms might temporarily reduce drug prices. But many companies will opt out of Part D rather than lose money by accepting below-market rates. As a result, the number of covered medicines available for seniors to choose from could steadily shrink.

The state of the Department of Veterans Affairs healthcare system could regrettably serve as a warning to lawmakers who want to negotiate drug prices. The VA system's "negotiated" prices are so low that some drug manufacturers opt out of the program, leaving veterans with access to just 65 percent of the most commonly prescribed medicines. By contrast, seniors on the most popular Part D plan have access to 99 percent of those drugs.

Medicare Part D is popular, cost-effective, and currently sustainable.

Larry Hausner is chief patient advocate of the Partnership to Fight Chronic Disease.
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