Fact Check: Medicare Part D

At the end of May, Senator Chuck Schumer of New York addressed the current Medicare structure during his appearance on Meet The Press.  When asked about the sustainability of the program, the Senator remarked "if Medicare negotiated the price of prescription drugs... with the drug companies, we'd save over 100 billion dollars."  He went on to compare the pricing structure for prescription medicines between Medicare and Medicaid asserting that if Medicare could pay Medicaid prices, there would be another $100 billion in savings.  

Did you know that the Congressional Budget Office has consistently said that repeal of noninterference in the Medicare prescription drug program (Part D) would save little, if any, money because Part D plans already negotiate significant price reductions?

Senator Schumer asserted that if Medicare could pay Medicaid prices, there would be another $100 billion in savings. However, the one thing that is clear (and has been documented) - any government intervention in the prices paid for prescription drugs under the Medicare Part D benefit, such as Medicaid-style price controls or "rebates," could distort the competitive dynamic of the program and result in a range of unintended consequences from a significant increase in beneficiary premiums, to a negative impact on innovation, and cost-shifting to other consumers.

A few items to think about:

  • CBO has warned that legislation imposing price controls in the Medicare Part D would ultimately lead to an increase in premiums by as much as 20 percent.
  • Mandatory rebates on Part D prescription drugs "would reduce manufacturers' incentives to invest in R&D on products that would be expected to have significant Medicare sales," according to CBO.  This could stifle potential breakthrough discoveries to treat Parkinson's, Alzheimer's, arthritis, osteoporosis, and other diseases that disproportionately affect the elderly.

In March of this year Senator Schumer released a press statement encouraging a "systematic approach to the development and purchase of the necessary vaccines, drugs, therapies, and diagnostic tools for public health medical emergencies...[while] removing barriers to innovation and reducing the opportunity costs for those private sector companies." 

The Senator is correct that we need strong innovation policy in the pharmaceutical industry, but forcing them to government price controls and imposing formulary restrictions on America's seniors is not the way to promote such a policy.