The Bigly Political Education of Donald Trump and His Medicare Promise

Warning: I am about to present actual FACTS about current laws with regard to Medicare negotiating drug prices (yes I am still obsessed with making sure American voters understand actual FACTS and laws that currently exist — and yes I am a card carrying Neanderthal I know.)

On January 11, Mr. Trump once again said he is “going to make Medicare negotiate directly with drug manufacturers to lower drug prices and save $billions of dollar every year — the pharmaceutical companies are getting away with murder.”

Cool. In fact, our much pilloried VA Health System already DOES directly negotiate with drug manufacturers…and pays roughly 40% LESS for similar drugs than the Medicare PBM’s do.

So you undoubtedly are saying to yourself “This is a no-brainer — just go to the same drug companies and say Medicare requires them to charge the 40% lower VA prices…or else we drop you drug like a hot potato.”

Well not so fast — like ALL things in the government, Mr. Trump is going to soon find out that existing regulations are nasty things…and that the politics of those regulations are even nastier.

Key point: Medicare is NOT the VA. In order to actually negotiate drug prices, the VA has a simple and very effective hammer: IF the drug company does NOT give them minimum 40% discount over Medicare pricing, the VA simply DROPs the drug from their drug benefit list (their “formulary”).

However, MEDICARE law and regulations are quite different when it comes to “dropping” drugs from THEIR formulary — and the short version is Medicare requires by law:

“A minimum of two drugs in each class must be included on formularies and six classes must include “all or substantially all” drugs on the market (CMS laws 2005a and 2005b).

How did we get a law on the books that restricts Medicare from negotiating the price they pay for pharmaceuticals (51% of its $646 BILLION total benefits spend in 2015)?

Thank Obamacare. In 2009 Big Pharma agreed to contribute $80 billion towards ObamaCare, largely by expanding the Medicaid discount to 23.1% from 15.1%. They also agreed to mark down prescriptions for seniors by 50% above a certain level.

Now the Medicare & Medicaid/CHIP math (source: Kaiser Foundation and CMS):

  • U.S. spending on healthcare (“NHE”) grew 5.8% to $3.2 trillion in 2015, or $9,990 per person, and accounted for 17.8% of Gross Domestic Product (GDP)
  • There are @56 million Medicare beneficiaries in 2015 growing to 79 million in 2030
  • Medicare spending grew 4.5% to $646.2 billion in 2015, or 20 percent of total NHE
  • Medicare prescription drug spending increased 9.0% to $324.6 billion in 2015
  • Medicaid spending grew 9.7% to $545.1 billion in 2015, or 17 percent of total NHE.
  • Over 74.5 million individuals were enrolled in Medicaid and CHIP (CHIP is state/Federal provided child health care for low-income households) in May 2016.
  • The VA pays 40% less than Medicare plans for prescription drugs.
  • The VA’s national formulary includes 59% of the most popular 200 drugs.
  • Medicare plans cover about 85% of the most popular 200 drugs on average (ranging from a low of 68% to a high of 93%).
  • If Medicare obtained the same drug prices as the VA, it would save $510 per beneficiary per year or a total of $18 billion per year (2015 prices)
In short, Medicare as configured today by law CANNOT threaten to “drop a drug off its formulary unless it gets VA prices” because it is required to offer (in many cases) ALL the drugs available in various drug classifications.

Key point: Without the legal ability to drop a drug off the Medicare drug formulary, there IS no negotiation OTHER than the normal volume rebates that PBM’s negotiate on Medicare’s behalf.

Got it?

Mr. Trump needs Congress to FIRST change Medicare law BEFORE a VA like 40% discount can be negotiated…and politically that new law would be VERY unpopular with the current 54 million Medicare beneficiaries.

What are the politics of Medicare? It has a shit ton of voters…especially in retirement states like Florida, Arizona, Colorado, North Carolina, Nevada.

As previously stated, currently, @54 million beneficiaries — some 15 percent of the U.S. population — are enrolled in the Medicare program.

The real kicker: Medicare enrollment is expected to rise to 79 million by 2030 as the rest of Baby Boomers reach 65.

Political Reality: Does ANY politician or political party wish to risk the wrath of 80 million voters in the 2018 elections? Do ANY people who paid into Medicare for 40 years want to lose a nickel of their “entitlement” benefits?

To both questions the answer is a big fat “Noooo.”

Really Key Point: As with almost every statement made by Mr. Trump about things he intends to “do” as POTUS, existing laws stand in the way. There is no “executive order” that can be made to change Medicare law…it has to go through the lily livered Congress first.

Political Reality: NO ONE running for office in 2 years (Senator or Congressman) wants an attack ad in his state/district that says:

“Mr. Smith voted to cut Medicare drug benefits 30% and to deny you access to these popular drugs (XYZ) — I will go to Congress and GET YOUR DRUGS BACK if you elect me.”

Do you not also think candidates running on a “I will restore the FULL drug benefits you earned” will easily get BIG donation money from the multi-$billion drug lobby?

Here are the key actual facts about Medicare pharma benefits

Medicare relies on private pharmacy benefit management (“PBM’s) administrators to

  1. Administer its Plan D drug benefits via their private stand-alone drug plans (PDPs)

2. Negotiate drug prices with manufacturers, subject to a set of formulary design rules that require all or substantially all drugs on the market to be included.

Again a drug “formulary” is simply the “approved list” of drugs that are made available to health plan beneficiaries — in ANY plan (HMOs, PPOs, Corporate Self-Funded plans and Medicare/Medicaid.)

And again, current Medicare law requires a minimum of two drugs in each class must be included on formularies and six classes must include “all or substantially all” drugs on the market (CMS 2005a and 2005b).

Reality: To achieve savings, Medicare would also need the ability to exclude drugs from its formulary (Congressional Budget Office 2007). This ability to tighten the formulary would provide the leverage to bargain for lower prices. But to change the Medicare formulary laws requires legislation from Congress to cut up to 30%+ of the drugs currently available to Medicare beneficiaries.

Medicare’s ability to negotiate program-wide prices and tighten plan formularies is in stark contrast to the VA, which negotiates directly with drug manufacturers and is not bound by the same formulary rules as Part D plans.

To repeat: That’s why the VA has been able to implement a national formulary more restrictive than those of Medicare plans and obtains lower drug prices.

That damn math again:

  • The VA pays 40% less than Medicare plans for prescription drugs.
  • Medicare plans cover about 85% of the most popular 200 drugs on average (ranging from a low of 68% to a high of 93%).
  • The VA’s national formulary includes 59% of the most popular 200 drugs.
  • If Medicare obtained the same drug prices as the VA, it would save $510 per beneficiary per year or a total of @$18 billion per year (2015 prices).
  • IF ACA program is rescinded, it is assumed that the Pharma lobby is released from its 8% additional Medicaid discount agreement

Welcome to Washington D.C. Mr. Trump.