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Medicare Part D (prescription drug coverage) is one of four parts of Medicare, a U.S. national health insurance program under the Social Security Administration (SSA) and administered by the Centers for Medicare and Medicaid Services (CMS). Medicare provides health insurance primarily for citizens ages 65 and above, but also offers assistance to younger individuals who have disabilities.
DID YOU KNOW?
“More than 43 million Medicare beneficiaries, or 72 percent of all Medicare beneficiaries nationwide, are enrolled in Part D plans.”
In this article, the Zero Theft Movement will specifically explore Medicare Part D and whether drug prices have truly been as affordable as possible for senior citizens. And if not, why that would be the case.
What is Medicare Part D?
In 2003, as part of the passing of the Medicare Modernization Act (MMA), Medicare Part D became effective immediately.
Medicare Part D is a voluntary prescription drug benefit for people with Medicare (primarily for seniors). Medicare enrollees receive financial help to pay for self-administered prescription drugs via private plans approved by the federal government.
Medicaid prices are set by law at the lower end of a discounted price or the lowest price anyone is able to negotiate. The VA negotiates prices, receives mandatory rebates, and maintains a National Drug Formulary.
So why doesn’t Medicare have the ability to control its drug costs? The short answer is politics.
While we may like to believe government representatives have our best interests in mind (a minefield in and of itself), the reality can often seem different. Medicare Part D’s non-interference clause, in particular, has received little approval from the public.
According to Arnold Venture’s (AV) 2019 nationwide poll surveying 1,202 registered voters across the political spectrum, one result stuck out.
87%, 87%! Regardless of party allegiances, a vast majority of voters supported Medicare negotiation for single source, high cost drugs. Two key details here that should not go unnoticed.
- When you have a drug that has a single source, that means it does not have any competition out on the marketplace. The drug manufacturers, acting according to the free market, can set a high price without anyone to undercut them. This means you, the consumer, have to fork out exorbitant amounts to pay for this prescription drug you can’t procure at a lower price (within legal means and the U.S.)
- “…even after exposure to opponents’ strongest arguments…and supporters’ counter-arguments.” This is important because it appears (at least, on paper) that the cases for keeping and repealing the non-interference clause were provided. Bias in how either side was presented is, of course, is information unavailable to us.
The Kaiser Family Foundation (KFF) surveyed 1,205 adults (18+) for their October 2019 tracking poll. You can read about their methodology here.
KFF’s question appears less focused than AVs, not limiting their inquiry to Medicare negotiations specifically for single source, high cost drugs. That being said, even with a more general question, KFF’s (88% approval) results were nearly identical to AV’s (87% approval).
We should not, however, overstate the public’s approval of repealing Medicare drug price negotiations. Both the KFF and AV surveyed ~1,200 people. That is nowhere near enough people for us to make claims about nationwide sentiments on this issue.
Medicare Part D Spending
|Year||Spend (in billions)|
2005, 2013, and 2017 (source)
Rest of years (source)
Why Can’t Medicare Negotiate Drug Prices?
Firstly, we should dispel a myth. Negotiations are happening; it’s just restricted.
The insurance companies delivering Medicare Part D negotiate drug prices for the drug benefit; it’s the Secretary of the Department of Health and Human Services, and the federal government who cannot, by law, ‘interfere’ in drug price negotiations.
Medicare Part D, with its enactment in 2003, included a controversial clause that has remained a point of contention to this day. The magazine Mother Jones published an article about pharmaceutical lobbying and Medicare Part D, stating: “[The MMA] slapped on an unusual restriction: The federal government was barred from negotiating cheaper prices for those medicines [offered through Part D]. Instead, the job of holding down costs was outsourced to the insurance companies delivering the subsidized new coverage, known as Medicare Part D.”
This provision is commonly known as the noninterference clause.
The noninterference clause states:
“In order to promote competition under this part and in carrying out this part, the Secretary—
(1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP [prescription drug plan] sponsors; and
(2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.”
Efforts to counteract the non-interference clause
Note: To eliminate the non-interference clause, a bill will have to pass all stages of the legislative process.
H.R. 3 – The Elijah E. Cummings Lower Drug Costs Now Act
Sponsors: Rep. Frank Pallone Jr. + 106 Democrats
Status as of July 2020: The bill with the most traction, H.R. 3 (also known as ‘The Pelosi Bill’) was passed by the House of Representatives. A vote from the Senate has yet to be taken.
Immediately addressing the issue at hand, Title I of H.R. 3 strikes the non-interference clause in Medicare Part D. The changed law would afford HHS with not only opportunities to negotiate prices for (certain) drugs, but also the leverage to actually come out with significant savings.
From Congressional Research Service via govtrack
Firstly, setting a price cap on insulin products is necessary and long overdue. No one should be compelled to ration their prescription drugs, especially when it’s truly a matter of death. Unfortunately though, as in the case of Alec Raeshawn Smith, the uninsured won’t receive much protection even if H.R. 3 becomes law.
Beyond affording some freedom for governmental drug price negotiation, H.R. 3 includes a combination of restrictions in place to prevent price gouging on drugs:
- Specific targeting of single source, high price or ‘brand name’ drugs
- ‘Reference pricing’–restricting the maximum price based on drug prices in foreign countries.
- The excise tax for unsuccessful negotiations starts at 65%, rises by 10% per year of non-compliance, and caps at 95%
H.R. 3, to some, doesn’t go far enough. Reading Title I, you might have realized that the non-interference clause is not repealed under the Lower Drug Costs Now Act. The bill just creates an exception. This means The HHS would not be able to negotiate highly priced, multisource medications like EpiPen and Avastin.
Read more about ways the bill could extend Medicare’s coverage further.
H.R. 1046 – Medicare Negotiation and Licensing Act of 2019
Sponsors: Rep. Lloyd Doggett + 127 Democrats
Status as of July 2020: H.R. 1046 (also known as the ‘Doggett/Brown bill’) has not progressed beyond the introduction stage.
From Congressional Research Service via govtrack
H.R. 1046 takes stronger measures than the Pelosi bill. The Doggett/Brown bill affords the CMS with unrestricted drug price negotiation rights. In other words, the bill strikes the non-interference clause. It does not set limits on the number and type of prescription drugs that can be negotiated. For example, the Doggett/Brown bill permits the CMS to negotiate the price of highly priced, multisource drugs such as the aforementioned EpiPen. As the bill actually strikes the non-interference clause instead of creating an exception, this bill should allow for widespread and swift price cuts, depending on how the CMS quantifies the “certain factors.”
Rather than creating leverage with excise taxes, H.R. 1046 addresses unsuccessful negotiations by revoking the drug manufacturer’s exclusivity rights and issuing a competitive license to another manufacturer. A generic or biosimilar version of the drug would go into production, providing an alternative for Part D enrollees.
However, the bill doesn’t seem to have all the details ironed out yet. The manufacturers producing an alternative drug with the competitive license would need to pay “reasonable compensation” to the original manufacturer. That calculation has yet to be determined. Furthermore, questions have been raised about instances where producing the generic or biosimilar version of a drug is delayed due to a manufacturer’s capacity limitations.
H.R. 448 – Medicare Drug Price Negotiation Act
Sponsors: Rep. Elijah E. Cummings + 25 Democrats
Status as of July 2020: Introduction stage
From Congressional Research Service via govtrack
Headed by the late Maryland Congressman Elijah E. Cummings, the Medicare Drug Price Negotiation Act (also known as Cummings/Sanders bill) shares many provisional similarities with the Doggett/Brown bill. The Cummings/Sanders bill strikes the non-interference clause, freeing up any restrictions in regards to the number and type of drugs that the HHS can negotiate. Also, those “certain factors” that the CMS will take into account under the Doggett/Brown bill apply to negotiating drug prices under the Cummings/Sanders bill.
The first main difference between the two is that H.R. 448 prioritizes negotiations for the most expensive drugs as well as those with the steepest yearly price increases. The second major difference is how the bill addresses unsuccessful negotiations. The Cummings/Sanders bill uses a form of reference pricing, setting the fallback price based on the lowest rate paid by other federal programs (e.g. Veterans Association or Medicaid), or prices paid for prescription drugs in certain OECD (Organization for Economic Cooperation and Development) countries. Whatever is the lowest price available will be the fallback price.
Klobuchar (S. 62) and Welch (H.R. 275) bills
Neither of these bills offer much more than striking the non-interference clause. There’s little reason to believe they will have much influence in reducing drug prices.
“It’s time for Medicare to harness the bargaining power of the 43 million Americans in the Part D prescription program to compel pharmaceutical companies to lower drug prices. As Senator Klobuchar pointed out, lower drug prices for Medicare patients would have a spillover effect benefitting all consumers.”
“According to a recent analysis, Medicare could have saved $14.4 billion on just 50 drugs in 2016 if the program had paid the same prices as the Department of Veterans Affairs, which is allowed to bargain for discounts.”
Eliminate Price Gouging Across Industries
Rigged drug prices negatively affect each and everyone of us. Some more than others, but most, if not all, of us will need medicine at least once in our lives. We aren’t talking about luxury goods here; medications are essential goods, requirements for you, your loved one, a friend of a friend to live. Being able to afford prescriptions can actually be a matter of life and death. We cannot let corporations unethically boost profits by exploiting our vulnerabilities and frailties.
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