Medicare Part D facing new overhaul

October 1, 2008

Even though the Medicare prescription drug benefit has provided access to medicines at less-than-anticipated cost to the government - and lower out-of-pocket spending for seniors - Democrats and consumer advocates are gearing up for a battle to overhaul the program.

Critics contend that the federal government can negotiate lower prices with pharmaceutical companies than those obtained by private insurers sponsoring prescription drug plans (PDPs). The reformers also charge that the program is too complex and confusing for elderly beneficiaries and that the infamous "donut hole" is hitting more Medicare patients than anticipated. Reports that insurers continue to violate marketing rules and do too little to prevent fraud provide added ammunition.

Beneficiary enthusiasm also might wane as costs go up: The Centers for Medicare and Medicaid Services (CMS) reported in August that the average PDP premium would be $28 per month in 2009, up 12% from $25 this year. The average is less ($21 per month) for Medicare Advantage drug plans, and slightly more ($31) for PDPs.

WINDFALL PROFITS

Waxman has directed much of his criticism of Part D at drug companies. He claims manufacturers are making big profits because they no longer have to pay rebates to state Medicaid programs for drugs delivered to low-income seniors now covered by the Medicare drug benefit. As chairman of the House Oversight and Government Reform Committee, Waxman cited a $3.7 billion windfall for pharma in 2006 and 2007 because of higher prices paid for drugs provided to "dual eligible" beneficiaries.

Another target of reformers is the coverage gap in the Part D benefit, which hit 26% of Part D enrollees in 2007, according to the Kaiser Family Foundation (KFF). This means about 3.4 million Medicare beneficiaries, largely seniors with chronic health problems, had to pay the full cost of their meds for at least part of the year. A significant number of seniors consequently stopped taking prescribed medications, and some switched to other drugs.

Drug plan sponsors also feel squeezed by the Medicare policy that requires coverage of certain "protected classes" of drugs by all Part D formularies: antipsychotics, antidepressants, antiretrovirals, immunosuppressants, anticonvulsants and antineoplastics. The Medicare legislation approved by Congress in July strengthened this policy and established a process for extending protected status to additional medications where formulary exclusion could have "major or life threatening clinical consequences."

PBMs and insurers fear such coverage requirements limit their ability to negotiate prices with manufacturers, while Democrats and advocacy groups praise it as a way to ensure reimbursement for important medicines.

Insurers and PBMs also oppose efforts by Democrats to repeal the "non-interference" clause governing Part D. PDP sponsors maintain that centralized price negotiations won't reduce spending and might actually boost prices if drug manufacturers have to give all players their deepest discounts. Nevertheless, both presidential candidates support federal government drug price negotiating, and Congress is likely to support such a move.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.