Embargoed Until:
July 30, 2009
12:01 a.m. Eastern Time



Christopher Fleming

How Could Congress Lower Drug Prices For Medicare Part D?

In Comprehensive Survey, Researchers Offer Pros And Cons Of Different Options

Bethesda, MD -- How could Congress obtain lower drug prices for Medicare’s “Part D” prescription drug benefit? That question, which legislators may address as part of health reform efforts, is the subject of an article published today on the Health Affairs Web site. http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.5.w832

The price-reduction strategy that has received the most attention is allowing the Secretary of Health and Human Services to negotiate directly with pharmaceutical manufacturers for lower prices. Currently, the Secretary is prohibited from doing this by the “noninterference” provision of the Medicare Modernization Act (MMA) of 2006.

Some observers have called for removing the noninterference language from the MMA, but such an option may not be politically feasible and may not lead to substantial savings because of the way Part D is organized. Authors Kevin Outterson and Aaron Kesselheim comment that “the structure of Part D, replete with many private plans, poses difficult administrative and practical hurdles to successful Federal price negotiations.”

A better approach to reducing drug prices for seniors would involve providing medications to the low-income elderly through Medicaid, rather than Medicare, say Outterson, an associate professor at Boston University School of Law, and Kesselheim, an instructor in Medicine, Division of Pharmacoepidemiology and Pharmacoeconomics, Department of Medicine, Brigham and Women's Hospital and Harvard Medical School. The MMA made Medicare the primary prescription drug source for poor seniors eligible for both Medicare and Medicaid. Since Part D drug prices average about 30 percent higher than Medicaid prices, returning the 6.2 million “dual eligibles” to Medicaid drug pricing could save as much as $2.8 billion annually, the authors say.

Outterson and Kesselheim also outline several other options for improving the ability of Part D plans to negotiate effectively with pharmaceutical companies. These options include:

Formulary design flexibility. The MMA requires that Part D plans cover at least two drugs in each therapeutic class. The Centers for Medicare and Medicaid Services (CMS) further requires plans to cover at least one drug in each subclass, and CMS also requires plans to cover “all or substantially all” drugs in six specially protected classes.

Relaxing these formulary requirements would allow plans to negotiate more aggressively with drug companies and could lower prices by hundreds of millions of dollars per year, say Outterson and Kesselheim. But they also emphasize the need to ensure that plans do not use tighter formularies to discourage enrollment by beneficiaries with expensive chronic conditions.

Extended generic and therapeutic substitution. Substitution of generic medications for their brand-name equivalents has long been recognized as an effective way to lower costs, and many Medicare Part D plans have achieved robust and growing generic substitution rates. However, substitution rates vary widely across plans, and laws have been proposed in some states to reduce the scope of generic substitution for certain classes of drugs.

Outterson and Kesselheim say a federal generic substitution law could prevent local legislative retrenchments and promote uniform generic access. They also note the potential savings associated with expanding generic substitution laws to include different drugs within carefully selected therapeutic classes. Congress is considering a form of such “therapeutic” substitution in legislation that would permit “generic” biological molecules, known as “follow-on biologics” or “biosimilars.”

Limited antitrust waivers. Congress could relax antitrust restrictions to allow Part D plans to voluntarily band together to negotiate for lower drug prices. These groups could be limited to no more than a quarter of the Part D market, Outterson and Kesselheim suggest.

Value-based pricing. Outterson and Kesselheim also discuss “value-based pricing” for prescription drugs, which entails paying more for medications with clear benefits over existing therapies and less for drugs with limited usefulness or extensive side effects. “Although value-based pricing does not necessarily lower the price of prescription drugs, its goal is to identify and encourage the use of more cost-effective medicines,” the authors write.

After the embargo lifts, you can read the article by Outterson and Kesselheim at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.5.w832


Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org.


©2009 Project HOPE–The People-to-People Health Foundation, Inc.