Medicare pays too much Rx drugs
If a customer on line ahead of you at a pharmacy got a 45 percent-off deal on a drug, and you were offered only a 19 percent discount, two questions would spring immediately to mind. Why? And how can I get the lower price?
That's the situation right now for Medicaid and Medicare. The same drug, from the same manufacturer, maybe even from the same drugstore, costs taxpayers significantly more if the bill goes to Medicare than if it goes to Medicaid. If you think that makes no sense, join the club.
With the soaring cost of those two health care-entitlement programs driving unsustainable federal budget deficits and debt, Congress should do what most customers short on cash would do -- go for the lower price every time. Applying the larger Medicaid discount to Medicare's Part D prescription drug program would not only save taxpayers money, it could also result in lower premiums for the program's 30 million beneficiaries.
The prices Medicaid and the private insurers that sponsor Medicare drug plans pay pharmacies are roughly the same for the 100 brand-name drugs evaluated recently by the Department of Health and Human Services Inspector General. But Medicaid recoups 45 percent of its spending in rebates paid by drug manufacturers. Medicare recoups only 19 percent.
The distinction that makes the difference is how the two programs arrive at those discounts. The Medicaid rebate is set by law and increases automatically when the price of a drug rises faster than inflation. Medicare rebates are negotiated between drug companies and private insurers.
That's because the law that created the Medicare prescription drug program in 2003 is structured so that the coverage is offered entirely through private insurers. And in another nod to the power of the private market, Congress expressly prohibited Medicare officials negotiating prices directly with pharmaceutical companies.
With Medicare's tab for outpatient prescription drugs expected to hit $68 billion this year and rise by almost 10 percent annually, Congress should reconsider and set the rebates by law, or allow the federal government to use its massive buying power as leverage to negotiate a better deal with drug companies.
Legislation supported by President Barack Obama's deficit-reduction commission would be a good start. The Medicare Drug Savings Act would change the rules for 9.2 million dual eligibles -- people who are old enough and poor enough to qualify for both Medicare and Medicaid. Their drugs were paid for by Medicaid until 2006, when they were moved into Medicare Part D programs. If the savings bill becomes law, pharmaceutical companies would be required to pay rebates at the Medicaid rate for drugs bought by dual eligibles. The Congressional Budget Office estimates that tweak alone would save taxpayers $112 billion in the next 10 years.
Drug companies will complain about government price fixing. They just want the best deal they can get for their shareholders. But Washington's job is to get the best deal it can for taxpayers.