Posted on July 25, 2008

The "dual-eligibles" scam


Medicare Part D: Drug Pricing and Manufacturer Windfalls

By the Majority Staff
United States House of Representatives
Committee on Oversight and Government Reform
July 2008


This analysis of confidential data on Medicare Part D and Medicaid drug prices shows that the private Medicare Part D insurers pay significantly higher prices for prescription drugs than does the Medicaid program. In the case of the six million dual eligible beneficiaries, the Medicare Part D insurers paid $3.7 billion more in 2006 and 2007 to purchase the top 100 drugs for dual eligible beneficiaries than they would have paid if they had access to the lower Medicaid drug prices. This increase in costs represents a windfall to drug manufacturers.

Eliminating the drug manufacturer windfall would realize substantial savings to federal taxpayers. Over the next ten years, taxpayers would save $86 billion if the Medicare Part D insurers paid Medicaid prices for drugs used by the dual eligible beneficiaries. If Medicare negotiated directly with drug manufacturers and obtained prices equivalent to the Medicaid prices for all Medicare beneficiaries, the potential savings to taxpayers increases to $156 billion.


Apples, Oranges and “Windfalls”

Republican Staff Analysis


The Part D benefit was designed to offer choice in prescription drug insurance, value for seniors through low negotiated prices, and overall low program costs for taxpayers. It is achieving those goals and exceeding expectations. The Majority report fails to recognize these benefits and instead makes inappropriate and unrealistic price comparisons. Politically appealing but substantively flawed changes like those advocated by the Majority would have serious implications for the prices paid by employers, unions, health care providers, and the uninsured. Likewise, changing the financial incentives in Part D could have a negative impact in the type of drug research and development that is conducted.

Finally, it is worth noting that the Majority has written eight reports on Part D and the program is only in its third year. This represents a significant level of oversight. Without a doubt Medicare requires substantial oversight given its importance to seniors and its uncertain long-term financial prospects. However, the Majority’s criticisms of Part D seem misplaced. Part D costs substantially less than Part A (which primarily pays for hospital based care) and Part B (which primarily pays for physician services). The Hospital Insurance trust fund, Part A’s revenue source, is not adequately financed in the short-term and will be exhausted in 2019. This looming financial crisis has received scant oversight from the Majority.


By Don McCanne, MD

To understand the basis for the problems with the Medicare Part D drug benefit, you need only to recall that the program was designed by the Medicare privatizers in Congress, with the support of two of the largest lobby interests in the nation: the private insurers and the pharmaceutical firms.

There are a great many problems that have been created by the privatization measures in the Medicare Modernization Act, but here we will limit the discussion not to just the Part D program, but to only one aspect of Part D: the application of Part D to dual-eligibles.

Dual-eligible Medicare beneficiaries are those individuals who not only qualify for Medicare based on age or long-term disabilities, but they also qualify for Medicaid based on their very low incomes. Before Medicare Part D was enacted, they received their drugs through the state-administered Medicaid programs. This worked well for the taxpayers because of the ability of the government to negotiate much lower drug prices, and it worked well for the patients because they received their necessary medications usually without any out-of-pocket expense.

The privatizers were successful in shifting the state-run Medicaid drug benefit into the Part D program. Because the drug benefit for the dual-eligibles is still subsidized, the cost impact was not that great for the beneficiaries, though the administrative hassles, including the need to comply with various formularies offered by the different plans, proved to be more than just an inconvenience.

The taxpayers did not fare at all well with this shift into the Part D program. This study by the Majority Staff demonstrates that taxpayers paid $3,739,000,000 more to the drug manufacturers for the top 100 drugs than they would have under the Medicaid drug program which this replaced. The Republican Staff response glosses over this very real additional cost foisted onto taxpayers.

The Republican response obfuscates and segues into Part A hospital funding - an important problem but not the subject at hand. Buried in their response, the Republicans do state that if the drug benefit for the dual-eligible population were returned to the Medicaid program, “this population would have access to Medicaid price controls and pharmaceutical manufacturers no longer would be benefiting from the purported windfall profits.” Of course they wouldn’t; the taxpayers would benefit.

This example shows once again that health policy science is not complicated. It’s the politics that are so difficult. One side is represented by individuals who want everyone to have affordable access to the health care that they need, and the other side is more interested in enhancing the private sector through measures such as ensuring windfall profits for the pharmaceutical firms.

One thing great about America is that it is our choice… but we do have to make a greater effort to be certain that everyone is making an informed choice.