The True Cost of Rebates

Medicare Part D has provided a continuous target for policymakers looking to cut health care spending. The irony of policy proposals like the Medicare Drug Savings Act is that they focus on one of the few programs that continue to provide quality, cost-effective care to beneficiaries. Earlier this week, Founder and Executive Director of the Center for Medicare Advocacy, Judith Stein contributed an opinion to Politico in favor of the Medicare Drug Savings Act of 2013. The article argued that this act “would ensure taxpayers get a better deal by requiring drug manufacturers to once again provide rebates for prescription drugs.” While applying rebates may save the government money in the short-term, this proposal threatens to create a policy imbalance that shifts costs to beneficiaries and diminishes the care patients have come to expect.

Reduced Access to Medicines

In her article, Stein explains that Medicaid rebates reduced expenditures by 45%. However, comparisons between Medicaid and Medicare often overlook differences between the programs. Medicaid and Medicare patients do not have access to the same variety of medicines. While Medicare beneficiaries can choose from a wide variety of plans, Medicaid beneficiaries have fewer options. Furthermore, the Medicaid model has resulted in many states developing a “preferred drug list” that limits the available medicines for patients, or creating maximums on the number of prescriptions allowed per month. Restrictions on medicines hamper the ability for health care providers to determine the best course of care for individual patients.

Greater Costs to Seniors

A critical component of Medicare Part D’s success has been its ability to use market-based competition to drive down costs. Insurers negotiate with pharmaceutical companies to determine pricing for the medications. Over the last few years, the average Part D monthly premium has held steady at about $30, and seniors have a range of coverage options to suit their individual needs. Applying Medicare rebates won’t save seniors money. It will save the government money, but at what expense? A former director of the Congressional Budget Office estimates that implementing rebates could raise seniors’ premiums by 20-40%. Across the country, that calculates to an increase in out-of-pocket costs of $1.5 to $3.7 billion for Medicare beneficiaries.

Health care sustainability ranks among one of the most important goals of policymakers and industry stakeholders. While implementing a rebate model into Part D may save money in the short-term, the priority of health care should quality and cost-effectiveness, not the bottom line. The Medicare prescription drug benefit provides a real-world demonstration of strong, effective health policy. Medicare Part D should serve as a model, not a target.