President Obama next week will take the political risk of formally proposing cuts to Social Security and Medicare in his annual budget. It is expected that in that budget will be Medicaid like rebates for Medicare part D.
It is easy to look at low hanging fruit when trying to deal with a complex problem. Especially if you are trying to cut short-term costs to benefit your political posturing and bring two disparate political parties together. In the Medicare debate, the low fruit is Part D (don’t worry Part B, you are down there too).
As the president and congress look at ways to reduce Medicare costs, it is very easy to suggested imposing price controls – in the form of Medicaid-style price controls on prescription drugs.
Medicare Part D was passed in 2003 under President George W. Bush, and it was designed to give seniors a combination of choice and value. Since its inception in 2006, the program has not only provided seniors and disabled Americans unprecedented access to medicines, it has also led to significant cost savings on medicines for about 30 million Medicare beneficiaries.
The Fact is that Part D works, The nonpartisan Congressional Budget Office (CBO) released figures that total Part D spending is 43 percent lower than their initial 10-year projections. Furthermore, a recent study in the Journal of the American Medical Association (JAMA) found that improved access and adherence to medicines through Part D saves Medicare about $1,200 per year in hospital, nursing home and other costs for each senior who previously lacked comprehensive prescription drug coverage.
Last month we had meetings with some of Illinois elected officials, who routinely brought up the Veterans Affairs’ (VA) prescription drug benefit model, something that I am sure the President has looked at as well. The VA benefit is government negotiated, and the drug prices are very low. But the formularies that the VA model has to use to keep their drug prices low are VERY restrictive. 84 of the drugs excluded from the VA formulary account for 1/4 of the drugs most prescribed to seniors. Also, the drugs on the VA prescription list are an average of 6-8 years old, so the latest and most effective drugs are not available. Because of this 42% of the VA enrollees have supplemented their prescription coverage with Part D or other private insurance.
So what does it mean if congress enacts price controls?
Imposing mandatory rebates in Part D could lead to job losses and higher premiums for seniors.
A recent paper from the Battelle Technology Partnership Practice estimates that a $10 billion to $20 billion reduction in biopharmaceutical sector revenue would result in 130,000 to 260,000 job losses across the U.S. economy. The pharmaceutical industry is one of the most research-intensive industries in the United States. Pharmaceutical firms invest as much as five times more in research and development, relative to their sales, than the average U.S. manufacturing firm. According to the National Science Foundation, our sector accounts for nearly 20 percent of all R&D funded and performed by U.S. businesses – the single largest share of all U.S. business R&D.
With reduced revenues, companies will look at their research efforts and focus on therapies with large patient bases, reducing research for orphan drugs and rare diseases.
Economists agree that introducing Medicaid-style price controls into Part D risks raising costs for seniors and other consumers. Imposing price controls and forcing formularies that will restrict patient access to cutting edge technology will shift the patient population from a preventative and managed system to a reactive system where patients will have increased hospital visits and medical bills thus increasing the costs of Medicare Part A.
Reducing the rising Medicare costs is a huge problem, and I can understand that the President and congress want to make quick and easy cuts. But cuts that have been suggested to Part D ultimately cut deeper than short-term cost savings. I will be interested to see the President’s proposed budget next week. I hope that it will include a more comprehensive approach to reducing Medicare costs. For more information on Part D, visit We Work For Health (source of most of my material here).
This is a conversation, not an editorial. Did I forget something, get it wrong or do you agree? Please Comment, Like, Re-Tweet and Share.