Friday, July 24, 2015
Carleton University, School of Public Policy and Administration
July 23, 2015
Mirror, Mirror on the Wall:
Medicare Part D pays needlessly high brand-name drug prices compared
with other OECD countries and with U.S. government programs
By Marc-André Gagnon, PhD. and Sidney Wolfe, MD.
With $69.3 billion in prescription drug spending in 2013, Medicare Part
D alone represents approximately 7% of the $993 billion global
prescription drug market. Around 58% of Medicare Part D spending on
prescription drugs is paid to brand-name manufacturers.
Despite its size, Medicare Part D is not allowed to "interfere with the
negotiations between drug manufacturers and pharmacies and [Part D plan]
sponsors" (P.L. 108-73, Section 1860D-11). Plan sponsors can obtain
substantial rebates from both drug manufacturers and pharmacies, but the
federal program is prohibited from leveraging its purchasing power to
realize economies of scale due to this non- interference clause.
As this policy brief will show, by using previously unavailable data
comparing U.S. brand-name drug prices with those of all other countries
members of the Organization for Economic Co-operation and Development
(OECD), Medicare Part D needlessly pays significantly higher prices than
any other comparator countries. Moreover, even in comparison to other
U.S. government programs such as Medicaid and the Veterans' Benefits
Administration (VBA), significantly higher prices are paid by Medicare
1. After including rebates, brand-name drugs cost Medicare Part D 198%
of the median costs for the same brand-name drugs in the 31 OECD countries.
2. Medicare Part D pays on average 73% more than Medicaid and 80% more
than the Veterans Benefits Administration (VBA) for brand-name drugs.
3. Medicare Part D would save from $15.2 billion to $16 billion a year
if it could secure the same prices that Medicaid or VBA, respectively,
receives on the same brand-name drugs.
4. While Medicaid and VBA often are used as benchmarks because of the
rebates or discounts they secure, even these organizations pay higher
prices than many OECD countries.
5. Under current Medicare Part D pricing, non-innovative "me-too" drugs
are priced as much or more than older, equally effective versions. By
currently paying inflated prices for drugs that do not provide value for
money, Medicare Part D artificially increases the returns and incentives
for non-innovative "me-too" drugs to the detriment of new innovative
medicines for unmet needs.
6. Reducing brand-name drug prices would reduce the high level of
cost-related non-adherence (people not filling their prescription for
financial reasons) found in Part D, by reducing beneficiaries' premiums
and co-pays. In addition, since the government pays for the majority of
Medicare Part D, taxpayers' contribution would decrease by at least $11
billion every year.
From the Conclusions and Policy Considerations
The after-rebate prices Medicare Part D plan sponsors pay for brand-name
drugs remain significantly higher than the current market prices found
in other countries or in other programs such as Medicaid or VBA.
Medicare Part D would save between $15.2 billion and $16 billion a year
if it could obtain the same manufacturer prices that Medicaid or VBA,
respectively, obtains for the same brand-name drugs. Lower brand-name
drug prices for Medicare Part D not only would generate savings, but, by
increasing patient access to prescribed drugs, it also could improve
adherence to treatments by reducing the high level of cost-related
non-adherence found in Medicare Part D.
While Medicaid and VBA obtain almost equivalent brand-name price levels,
they create completely different incentives for pharmaceutical R&D. The
unconditional "basic rebates" of Medicaid foster the current business of
developing me-too drugs while creating an incentive to artificially
inflate official prices. The proactive drug formulary management of VBA
maximizes therapeutic value for every dollar spent and thus provides
greater incentives for producing more innovative products.
The main argument against managed formularies is that such formularies
restrict patients' choices. Indeed, managed formularies do not reimburse
all new drugs, only those that provide value for money. However, freedom
of choice is never at stake, since patients can decide to pay out of
pocket for the drugs or treatments they desire, even if clinical
evidence shows that these treatments do not provide therapeutic value
for money. A managed formulary for prescription drugs does not reduce
freedom of choice; it only reduces the freedom to needlessly waste
Policy Brief (19 pages):
Comment by Don McCanne
This report compares drug spending in the United States with other OECD
nations and contrasts the higher prices in Medicare Part D with the
lower prices in the Veterans' Benefits Administration (VBA) and the
Medicaid programs. Although supporters of the Medicare Part D drug
program continue to tout the savings from the plans, this report shows
us how we would be far better off if we used a public purchasing program
such as that of the VBA instead of depending on competition of private
pharmacy benefit managers wherein the government is prohibited from
interfering in negotiations.
This report provides data that can be used to refute PhRMA's contention
that "fundamentally alter(ing) the structure of the successful Medicare
Part D program would hurt both taxpayers and beneficiaries" (WSJ
Pharmalot, July 23). To the contrary, it would help both taxpayers and
at 2:28 PM