qotd: CMS passively rejects any government role in reducing Part D drug costs

Department of Health and Human Services
Office of Inspector General
April 2015
Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a
Substantial Margin

Conclusion

Drug rebates reduce the program costs of both Medicare Part D and
Medicaid. Medicaid rebates are defined by statute and include additional
rebates when prices for brand-name drugs increase faster than inflation.
In contrast, Part D sponsors (or contractors acting on their behalf)
negotiate rebates with drug manufacturers, and there are no statutory
requirements regarding the amounts of these rebates. In fact, the law
establishing the Part D program expressly prohibits the Government from
instituting a price structure for the reimbursement of covered Part D drugs.

We found that Part D sponsors and State Medicaid agencies paid
pharmacies similar amounts for most brand-name drugs under review.
However, Medicaid rebates for brand-name drugs exceeded Part D rebates
by a substantial margin. Additionally, Medicaid's net unit costs (i.e.,
pharmacy reimbursement minus rebates) were much lower than net unit
costs under Part D in 2012 for nearly all selected drugs. Also, more
than half of Medicaid rebates owed by manufacturers for selected
brand-name drugs were attributed to the inflation-based add-on rebates.

A major driver of the higher Medicaid rebates was the additional amount
owed when prices for brand-name drugs increase faster than inflation.
This rebate not only produces additional Medicaid rebates, but also
helps protect the program from increased costs when manufacturers raise
prices. The Part D program does not contain a similar provision.

This is the second OIG evaluation that demonstrates the substantial
difference in rebates collected under Medicaid and Medicare Part D.
While we recognize the statutory limitations surrounding rebate
collection under Part D, we encourage CMS and Congress to explore the
costs and benefits of obtaining additional rebates under Part D.

**

Appendix

Agency Comments

To: Daniel Levinson, Inspector General

From: Marilyn Tavenner, Administrator, CMS

Subject: Office of Inspector General (OIG) Draft Report: "Update:
Higher Drug Rebates Result in Lower Costs for Medicaid Compared to
Medicare Part D" (OEI-03-13-00650)

The Centers for Medicare and Medicaid Services appreciates the
opportunity to review and comment on the OIG's draft report. The Part D
program has significantly outperformed cost estimates, resulting in
lower than expected premium levels since the inception of the program.
Additionally, starting in 2011, brand drug manufacturers provide a 50
percent discount for their products to beneficiaries in the Part D
coverage gap phase o f the benefit.

As this report discussed, minimum drug manufacturer rebates under the
Medicaid program are defined by statute whereas similar rebates under
the Medicare Part D program are determined solely through negotiations
between drug manufacturers and Part D sponsors. However, Section
!8600-ll(i)(1) of the Social Security Act states that CMS "may not
interfere with the negotiations between drug manufacturers and
pharmacies and PDP sponsors." Consequently, absent new legislative
authority, CMS cannot interfere in the rebate negotiations between Part
D sponsors and drug manufacturers to secure additional rebates.

The Part D program has significantly outperformed cost estimates,
resulting in lower than expected premium levels since the inception of
the program. Additionally, starting in 20 II, brand drug manufacturers
provide a 50 percent discount for their products to beneficiaries in the
Part D coverage gap phase of the benefit.

Thank you for the opportunity to review and comment on this draft OIG
report.

https://oig.hhs.gov/oei/reports/oei-03-13-00650.pdf

****


Comment by Don McCanne

Patient advocates were rightfully upset when Congress included a
prohibition in the Medicare Part D drug program preventing the
government from instituting a price structure for the reimbursement of
covered drugs. The OIG has now released another report showing that the
net cost of drugs under the Part D program, which relies on private
sector negotiations, are much higher than the net cost of drugs under
the government-administered Medicaid program.

CMS administrator Marilyn Tavenner has provided a response which is
included in the appendix to this report. Whereas her comment
appropriately concurs with the OIG observation that CMS cannot interfere
in the rebate negotiations between Part D sponsors and drug
manufacturers, her unsolicited comment praising the performance of the
Part D program warrants concern. (The fact that the "cut and paste"
error of including the comment twice shows the importance they place in
including this diversionary concept in their response.)

Whenever CMS is challenged on the higher drug costs through the Part D
program, their routine response is to report that "The Part D program
has significantly outperformed cost estimates, resulting in lower than
expected premium levels since the inception of the program." They never
suggest that CMS should be granted the authority to negotiate lower Part
D costs, as they already do with Medicaid. Thus, passively, they
continue to be supportive of the pharmaceutical industry and the private
Part D insurers and pharmacy benefit managers.

This is part of the pattern of CMS supporting the private sector, which
includes their devious innovations to increase payments to private
Medicare Advantage plans when the unequivocal intent of the law was to
reduce their overpayments.

It is clear that CMS, with the full support of President Obama, is
providing extra financial support, directly or indirectly, to the
private sector administrators of our health care dollars, when the
evidence is overwhelming that the public sector would obtain for us much
greater value in our health care purchasing. The Obama administration
appears to be permeated with industry shills.

It is no wonder that they reject any consideration of single payer. That
would ruin the corrupt relationship that they have with the private sector.