House Committee Report Finds Medicare Pays Up to 30% More for Medications Under Part D Plans

The House Committee on Oversight and Government Reform during a hearing on Thursday released a report that found the Medicare drug benefit in its first two years has paid about 30% more for prescription drugs than Medicaid would have paid for the same medications, costing the program about $3.7 billion, the Los Angeles Times reports (Gaouette, Los Angeles Times, 7/25). The report examined drug benefit spending for about six million so-called "dual eligibles," beneficiaries who qualify for both Medicare and Medicaid.

In 2006, the first year of the drug benefit, Medicare paid $1.7 billion more for the 100 most commonly used drugs by dual eligibles than Medicaid would have paid. In 2007, Medicare paid about $2 billion more than Medicaid would have paid. Medicaid, on average, gets discounts of about 30% on drugs for beneficiaries. Medicare receives a discount of about 8% on average through its drug benefit.

The report stated that Johnson & Johnson received $615 million more from Medicare part D than it would have from Medicaid, the largest portion of the $3.7 billion. Of that money, $500 million came from sales of Risperidal, an anti-psychotic. Bristol-Myers Squibb received an additional $400 million, including $200 million from sales of Plavix, a heart attack and stroke medication.

Committee Chair Henry Waxman (D-Calif.) said he would soon introduce legislation that will require the drug benefit not pay more than Medicaid would for dual eligible drug coverage, which he said would reduce drug spending by as much as $86 billion over 10 years (Reichard, CQ HealthBeat, 7/24). "This is an enormous giveaway and it has absolutely no justification," Waxman said (Edney, CongressDaily, 7/24).

Acting CMS Administrator Kerry Weems said that the drug benefit has reduced spending by about 40% from original projections when Congress was creating the program. Republicans on the committee also said that the drug benefit gives beneficiaries more choices than Medicaid coverage. They also warned that cutting drug costs could hinder innovation in the pharmaceutical industry.

Waxman responded that spending for the drug benefit is not as high as projections because enrollment has not reached projected levels. He also said that innovation in the drug industry was not hampered when the dual eligibles were receiving drug benefits through Medicaid, so it would not change if the drug benefit paid the same rates (CQ HealthBeat, 7/24).

Richard Smith, vice president of the Pharmaceutical Research and Manufacturers of America, said that private market competition has brought down costs of the drug benefit for beneficiaries and taxpayers. He added that the government should not interfere by setting price controls (Los Angeles Times, 7/25).

The report is available online (.pdf).