On Tuesday, I debunked some of the common myths about Medicare and Medicaid. One of these myths--the effectiveness of cost-containment strategies--is currently being echoed on the Hill. The myth provides a perfect example of how this kind of government intervention can actually result in unintended consequences for patient care.
A new congressional super committee has been charged with raising the debt ceiling and eliminating more than $1 trillion in spending by the end of the year. One of the current proposals includes instituting a Medicaid-like government price control in Medicare Part D.
How Does the Medicaid Rebate Model Work?
Both Medicaid and Medicare receive discounts on prescription medications for their beneficiaries. In each case, drug manufacturers pay the price difference to cover the discount. Currently, Medicaid often gets deeper discounts on many prescription drugs because the amount of the rebate is set by law, whereas Medicare Part D drug costs are negotiated between the drug company and private insurance providers.
While enforcing the Medicaid price control may seem like a way to cut down government spending in Medicare, in reality it faces some of the same shortcomings as many of the other cost-containment strategies we have seen in the past. Below are a few points on why the current Part D system works and on the proposed changes' potentially harmful consequences:
If it's not broke...
- Medicare Part D has been overwhelmingly successful in satisfying patient needs and has done it at a lesser cost than initially forecasted. Over 80% of Medicare Part D beneficiaries report that they are satisfied with their coverage benefit. Additionally, the cost of the program has come in 41% lower than was originally predicted in 2005. In a study published last week, the Journal of the American Medical Association reported that Medicare spending has dropped $1200 annually for people who previously had limited coverage but are now enrolled in Part D. That is a total estimated savings of $12 billion annually.
- According to earlier estimations by the Congressional Budget Office, shifting Medicare Part D to the proposed Medicaid-like rebate system would "lead to an average increase in premiums for Part D beneficiaries, above those under current law, of about 5 percent in 2011. That effect would rise over time and reach about 20 percent in 2019."
Research & Development and Innovation
- The $100 billion cost to the pharmaceutical industry as a result of these changes could have adverse effects on future innovation. With less money available for research and development, the ability to develop breakthrough drugs for diseases like Alzheimer's, diabetes, or cancer is compromised. The cost of each new medicine is over $1 billion. If the proposed changes to Part D are implemented, they could reasonably prevent 100 new medicines and treatments from reaching patients. Innovation is a better step toward cost reduction as prescription drugs reduce hospitalizations, which incur the largest costs for health care programs.