Myth #9: The private sector does a better job than the government in negotiating lower drug prices.
Fact 1: The switch from Medicaid to private Part D coverage has raised drug prices.
Private insurance companies offering the Part D drug benefit pay pharmaceutical manufacturers more for medicines than the government-operated Medicaid program did when it covered people with Medicare and Medicaid, say financial analysts who monitor drug companies. According to a recent New York Times article, Eli Lilly “is able to charge significantly more to Medicare than Medicaid” for its best-selling drug, Zyprexa, used to treat schizophrenia.[1] Profits for Pfizer, the world’s largest drug company, have more than doubled in 2006 — since the drug program began — compared to the year before.[2] The company pocketed almost $1.8 billion because of the switch of over six million people from Medicaid to Medicare drug coverage.[3]
The transition in drug coverage from Medicaid to Medicare reversed a trend toward slower growth in drug spending brought about by effective cost-control measures used by state Medicaid programs, according to researchers for the Centers for Medicare & Medicaid Services. By banding together to negotiate with manufacturers, states sharply curtailed drug spending in 2005, the year before the switch from Medicare to Medicaid.[4] In 2006, the first year of the privately run Part D benefit, drug spending increased as Part D plans failed to secure the price concessions that states had been able to negotiate.[5] The Centers for Medicare & Medicaid Services does not project Part D plans will be able to increase the discounts Part D plans receive from manufacturers over the next ten years.[6]
Fact 2: Both retail prices and net costs are lower under government programs than under Part D.
Retail prices of the top 20 drugs most prescribed for seniors are as much as 12 times higher under Part D than the prices paid by the Department of Veterans Affairs for the same prescriptions, according to a recent report by Families USA. The consumer group looked at what the five insurance companies with the most Medicare members charged for a year’s supply of the drugs in 2006.[7] The VA gets better prices through a combination of direct negotiations and regulations that set ceilings on the prices manufacturers can charge the program.
Even factoring in the secret rebates Part D plans receive from drug manufacturers, the net costs of drugs under Part D are 22 percent higher than the rates paid by Medicaid and 31 percent higher than the prices paid by the Department of Veterans Affairs.[8]
[ 1 ]"Pfizer and Other Drug Makers Report Higher Profits," The New York Times, October 20, 2006.
[ 2 ]"As Drug Prices Climb, Democrats Find Fault With Medicare Plan," The New York Times, November 6, 2006.
[ 3 ]Testimony before the House Oversight and Government Reform, Gerard Anderson, February 9, 2007 (http://oversight.house.gov/Documents/20070209123654-09260.pdf)
[ 4 ]"National Health Spending in 2005: The Slowdown Continues,” Health Affairs, January 1, 2007
[ 5 ]"Health Spending Projections Through 2016: Modest Changes Obscure Part D’s Impact,” Health Affairs, February 21, 2007
[ 6 ]Testimony before the House Oversight and Government Reform, Gerard Anderson, February 9, 2007
[ 7 ]"No Bargain: Medicare Drug Plans Deliver High Prices," Families USA, January 7, 2007. (http://www.familiesusa.org/assets/pdfs/no-bargain-medicare-drug.pdf)
[ 8 ]Testimony before the House Oversight and Government Reform, Gerard Anderson, February 9, 2007