Medicare Part D: Price Does Matter

JAMA Internal Medicine recently published a report examining the impact that pharmacy benefit manager (PBM) negotiated discounts can have on seniors enrolled in Medicare Part D. The study comes at a time when the White House and Congress are looking at potential ways to tackle rising prescription drug prices, as many Americans struggle to pay for their medicines.

One of the study’s authors, Stacie B. Dusetzina, Ph.D., states: “We’ve heard over the years that the list price doesn’t really matter, that it’s not the real price,” Dusetzina said. “It matters.”

That is absolutely correct. At the root of the problem — and something that is often overlooked in the debate over rising drug prices — is where the prices are set, the point from which those negotiations are starting.

The JAMA study demonstrates the growing problem with the high drug prices manufacturers set for their products and highlights the affordability problems for seniors when the products they are prescribed are costly specialty medications. Due to the high cost of these drugs, some beneficiaries are quickly moving through their initial coverage, the donut hole and hitting the catastrophic limit, causing increased government spending in the reinsurance part of the benefit. For example, last year, the Medicare Payment Advisory Commission (MedPAC) found that the savings from increased use of generics was completely wiped out by increased spending on hepatitis C products.

MedPAC also found that fewer than 10 percent of Medicare beneficiaries hit the catastrophic limit each year, and that percentage has remained constant over time; MedPAC notes what is driving the increase in government spending is rapid, aggressive price increases by manufacturers, particularly for products lacking competition.

The JAMA report, while noting the important pressures beneficiaries face from higher drug prices, does not acknowledge that 90 percent of Part D beneficiaries who don’t hit the catastrophic limit would face much higher premiums, which could lead to lower enrollment and potentially fewer healthier seniors enrolling — driving up the cost for taxpayers and seniors (currently only 72 percent of eligible seniors are enrolled in a Part D plan).

This result should be concerning for Medicare Part D and seniors. PBMs have managed to keep premiums stable for seniors, growing by an average of one percent per year between 2012 and 2016. This stability in premiums is due in large part to direct negotiations with pharmacies, averaging savings of 57 percent off manufacturers’ list prices and $24 billion in negotiated discounts directly with manufacturers.

Over the last ten years, Medicare Part D has proven to be effective at controlling prescription drug costs for seniors, thanks in large part to the work of PBMs. As policy makers look for solutions to manage rising drug costs and alleviate the burden of high drug prices on consumers, they should build on what is already working in Part D: PBMs’ effective negotiations and clinical programs that are saving seniors and taxpayers billions of dollars, keeping premiums stable and costs lower at the point of sale.