Prescription Drugs Number of Medicare

Prescription Drugs number of Medicare prescription-drug reforms took place with the passage of H.R. 1, The Medicare Prescription Drug and Modernization Act of 2003. These reforms were aimed largely at creating a Medicare prescription drug benefit (Haislmaier). Overall, these reforms aim to balance the government's need to protect Medicare recipients and save money with recipients' needs to receive appropriate treatment.

In recent years, the high cost of medical care in the United States has led to new and heated debate about the need for government intervention in the pricing of pharmaceutical drugs. Pharmaceutical spending has increased perhaps the most of all health care costs, marking about 11% of total health care spending in 2002. That same year, prescription drug spending increased a substantial15%, while other health care spending increased only 9% (Kaiser Family Foundation).

Government intervention in the area of pharmaceutical drugs increased with the passage of H.R. 1, The Medicare Prescription Drug and Modernization Act of 2003. The Act was passed on December 8th of 2003, and established a voluntary prescription drug benefit under Medicare. In addition, the Act requires an "initial preventive physical examination," and covers a variety of tests, including those for prostate and colorectal cancer, and diabetes. In addition, mammography, pap smears, and vaccinations are covered, among other services (Office of Legislative Policy and Analysis).

One of the major provisions in The Medicare Prescription Drug and Modernization Act prevented the federal government from entering into direct negotiations with the pharmaceutical industry in the hopes of reducing drug prices paid by consumers (Dealey). This provision created a great deal of debate about the pros and cons of government intervention to control the costs of pharmaceutical drugs.

Haislmaier notes that critics of the governmental Medicare reforms argue strongly that the legislation will ultimately be costly. Chief among these worries is the fact that the government cannot take a part in negotiations between the private plans and pharmaceutical companies, potentially raising drug costs. Because the government cannot negotiate using the purchasing power of Medicare's clients, the elderly, critics worry that drug prices may be unnecessarily high (Haislmaier). Sen. John Kerry noted, "Seniors often pay higher drug prices because they do not have the leverage to negotiate more affordable drugs. The only possible explanation for prohibiting Medicare to negotiate for better prices is that this is a special interest provision that increases pharmaceutical industry profits (Dealey).

However, Haislmaier notes that it is not necessarily true that drugs will be more expensive because of the ban on government/drug maker negotiations. He notes that drugs are not a commodity, like oil, where all suppliers offer essentially the same product, differentiated only by price. In the case of drugs, doctors can often choose between a number of different drugs for specific ailments. Each of these drugs offers specific benefits to specific patients. As a result, there is much more than simple price to be considered. If the government only shopped or negotiated for drugs based on price, they would severely limit the choices for people on Medicare (Haislmaier).

In addition, critics of the Act suggest that giving the government negotiating power with pharmaceutical companies may increase other costs. Notes Haislmaier, if the government decided which drugs to purchase based only on price, this practice "could even result in Medicare's spending more on doctor and hospital visits by substituting less effective drugs for more effective ones."

In the current Medicare reforms, Medicare users have even more market clout than they would if the government negotiated for drug prices. In the Medicare reforms, the balance between drug price and availability to patients is given to private insurers and pharmacy benefit managers (PBMs). The 41 million Medicare users would have only the market clout of their numbers if the government negotiated for them. Currently, the PBM Advance PCS covers 75 million people, while Medco Health Solutions covers 65 million people. Letting Medicare beneficiaries use these PBMs actually increases their marketing power, thus reducing costs (Haislmaier).

Interestingly, others state that Medicare user's market clout is much more powerful than that of many private health providers. Notes Dealey, "Medicare's market demand for many prescription drugs [sic] estimated at 40 to 50% -- and in some cases, as high as 95%."

Further, the current use of private insurers and pharmacy benefit managers offers Medicare users more experienced hands than if the government managed drug benefits. Medicare has little experience buying prescription drugs for outpatients, while private insurers have a great deal of experience. This is especially important considering that "the prescription drug market is highly complex from both the medical and economic perspectives" (Haislmaier). The Medicare Prescription Drug and Modernization Act of 2003 takes these complexities into consideration when allowing Medicare recipients to use the power of PBMs to obtain drugs, and banning the federal government from negotiating with pharmaceutical companies on the recipients' behalf (Haislmaier).

The current provision that prevents federal government negotiations with the pharmaceutical industry is advantageous in that it avoids price controls. Resulting price controls may have result in decreases in research and development (American Legislative Exchange Council), as has been seen in Canada and Europe (Dealey).

In addition, price controls can have several other negative effects, such as increasing total program costs. Notes Haislmaier, "Forcing patients to accept lower priced, less effective drugs can actually result in increased total drug spending as the volume of drugs prescribed increases." In addition, hospitalization and visits to physicians may increase because "the prescribed drug treatment course is sub-optimal" (Haislmaier). These effects may be felt more by elderly patients than non-elderly patients (Haislmaier).

Critics also argue that allowing the private sector to set drug availability and prices also leads to the potential for abuse. For example, a recent lawsuit returned million of dollars to cancer patients who were overcharged for the drug Lupron. In the Lupron case, the private sector dynamics allowed for overcharging, a practice that could potentially continue under the new Medicare reforms. The manufacturer, TAP Pharmaceuticals bribed doctors to prescribe Lupron by offering them free samples and discounted prices, and then suggesting the doctors charge Medicare and Medicaid the entire price and pocket the leftover amount. TAP Pharmaceuticals was required to play $885 million in the case. Disturbingly, "lawsuits and investigations have uncovered... much collusion between drug makers and health care providers" (Barry).

One problem with the current Medicare reforms is that the universal entitlement may reduce existing coverage, including costs for retirees (Haislmaier). Universal access could easily increase costs for Medicare, thereby increasing taxpayer burdens (American Legislative Exchange Council).

However, supporters argue that universal access is also a highly positive thing. Such access has the tremendous benefit of making outpatient prescription drugs available to all who need them, not just those lucky enough to have specific plans based on employment or financial means (Haislmaier).