CASE Op-Ed: Transparency Is Key to Lower Medicare Part D Costs
Matthew Kandrach, CASE President
Government programs don’t have a great track record of coming in under budget, but Medicare Part D is the rare program that has succeeded in providing American seniors with affordable drugs at a lower cost than was initially anticipated. The secret to Part D’s success is that pharmaceutical companies engage in private negotiations to offer deep discounts and rebates on drugs. Unfortunately, the negotiated discounts aren’t always passed on to consumers, and that needs to change.
Last month, the Centers for Medicare and Medicaid Services (CMS) took meaningful steps to address this problem by issuing a proposed rule and request for information that would help Part D beneficiaries pay less for their medicines. The proposed rule for the Medicare Part D plan year of 2019 seeks to explore ways to help ensure that patients benefit more directly from the substantial discounts and rebates drug manufacturers offer on prescription medicines. According to CMS, these changes could reduce net beneficiary costs by $10.4 billion over 10 years – a substantial savings.
For those not immersed in the inner workings of the healthcare industry, Pharmacy Benefit Managers (PBMs) act as middlemen between prescription drug manufacturers and pharmacies in private negotiations that achieve substantial rebates and some of the lowest possible prices for medications.
But evidence is mounting that PBMs distort the market for drugs and increase costs for consumers. Just three PBMs control 78 percent of the prescription benefit market, and control of the market allows them to keep drug manufacturers, pharmacies, plan sponsors and patients completely in the dark on the actual cost of prescription medications paid by consumers.
For example, PBMs negotiate rebates from drug companies, but they are not required to pass the savings on to consumers. Instead, they can pocket up to 15 percent of the rebates that are intended to go to patients, ultimately increasing costs for consumers.
To fix this problem, CMS is seeking to reduce costs for patients by identifying ways to ensure that patient’s out-of-pocket costs at the point-of-sale are consistent with a drug’s actual price. This is a good idea. Increasing transparency in this way would make it much more difficult for PBMs to pocket savings from rebates that are intended for patients and would allow patients to more directly benefit from Part D drug negotiations.
In addition to addressing PBM price manipulations, CMS’s proposed rule seeks to lower costs and expand access to drugs in other ways. The rule proposes more flexibility for mid-year changes to prescription drug formularies and suggests treating lower-cost “biosimilars” like other generic drugs when determining how much beneficiaries pay for drugs out-of-pocket under Medicare Part D. These welcome changes would serve to increase marketplace competition and drive down prescription drug costs for patients.
America’s seniors deserve access to affordable prescription drugs, and CMS’s proposed changes to Part D are a positive step toward establishing a more transparent and affordable health care system. By supporting this rule, we can help ensure that PBMs pass the savings from Part D’s substantial discounts and rebates on to the seniors who need them. Lowering healthcare costs for seniors should be a goal all Americans can agree on.
Matthew Kandrach is President of CASE – Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.