Price Negotiation Could Be Part Of Democrats' Part D Reform

With their gain of control of both houses of Congress, Democrats plan to move forward with a plan to allow the federal government to negotiate drug prices in the year-old Medicare Part D program, a change that could impact the substantial number of beneficiaries with mental illness.

During the run-up to the 2006 mid-term elections Democrats campaigned on a “ Six for '06' ” platform of legislative goals they wanted to achieve. One goal was to “fix” the Medicare drug program by having the federal government negotiate lower drug prices and “ending wasteful giveaways to drug companies and HMOs,” according to Democratic campaign literature.

In December congressional Democrats renewed their pledges to have the Department of Health and Human Services (HHS) negotiate directly with drug companies for reduced prices in Medicare Part D. Incoming House Speaker Nancy Pelosi (D-Calif.) went even further in mid-December when she said she would push legislation that would require—not just allow—HHS to negotiate directly with pharmaceutical companies on medication prices.

The Medicare drug benefit is administered through various private plans, some of which are freestanding prescription drug plans, such as AARP's, and others that are administered through HMOs and other kinds of managed care plans.

After the election handed Democrats control of both chambers of Congress, the Centers for Medicare and Medicaid Services (CMS) revealed that the cost of the Medicare prescription drug benefit would be about $30 billion in 2006, or 30 percent less than its previous estimate of $43 billion. The estimated long-term costs through 2015 also dropped to $729 billion from $926 billion. The drop, according to CMS, is due to lower-than-expected increases in prescription drug prices and the effect of competition among Part D plans.

In addition, some Part D plans say they will offer enhanced benefits in 2007, including elimination of cost sharing for generic medications.

Unintended Negative Effects

Opponents of the expanded government role have highlighted some evidence that such a move could have unintended negative effects. One report,“ The Human Cost of Federal Price Negotiations: The Medicare Prescription Drug Benefit and Pharmaceutical Innovation” by the Manhattan Institute for Policy Research, concluded that mandated federal price negotiations would substantially reduce the number of new drugs brought to the market each year because drug manufacturers would have less profit to reinvest in research.

However, surveys have found public support for government negotiations to lower prices within the program, including a November Kaiser Family Foundation national poll that found substantial majorities of Democrats (92 percent), independents (85 percent), and Republicans (74 percent) support allowing the government to negotiate Medicare drug prices. Overall, 85 percent favored such a move, with 65 percent strongly favoring it and 20 percent somewhat favoring it.

Any changes in the prescription benefit could have a large impact on beneficiaries with mental illness. Nearly 40 percent of low-income beneficiaries, or about 2.5 million people who qualified for both Medicare and Medicaid—so-called dual eligibles, have a cognitive or mental impairment, according to a MedPAC, a research program of the federal government.

Some Prices Already Negotiated

Supporters of federal government price negotiations point out that the government already negotiates drug prices under Medicaid and the Department of Veterans Affairs and pays substantially less overall for the same drugs than do Part D beneficiaries. Critics of price negotiations, including the Bush administration, have pointed out that those price negotiations have resulted in a choice of drugs that is more limited for beneficiaries in those programs than for most Medicare beneficiaries.

Due to the Bush administration's strong opposition to federal price negotiation and the narrow margins by which Democrats control Congress, some congressional officials said that Congress may stop short of mandating government negotiation of all drug prices in Medicare and instead direct the government to enter the Plan D market as another buyer alongside the existing private plans.

Some advocates of greater change to the prescription drug program believe that major change will not happen unless the 2008 presidential election winner makes that a national priority.

More information on the Part D program is posted at<www.mentalhealthpartd.org>.▪