Medicaid fetches higher drug rebates than Medicare

Democratic lawmakers want legislation that would encourage drugmakers to offer deeper discounts to poorer Part D enrollees.

By Charles Fiegl — Posted Aug. 29, 2011

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Medicaid patients have received higher rebates for their prescription drugs than patients enrolled in the Medicare Part D program, according to an August report by the Dept. of Health and Human Services Office of Inspector General.

Medicaid, which uses a statutory inflation-based formula to set discounts, collected $2.9 billion in rebates from drug manufacturers for every $6.4 billion in expenditures in 2009, the report found. Part D, which relies on rebates negotiated with drug companies, collected only $4.5 billion in rebates for every $24 billion worth of spending.

Unlike the Medicaid program, the Part D plans operated by private contractors negotiate rates with drug manufacturers without any federal statutory requirements on rebate amounts, CMS Principal Deputy Administrator Marilyn Tavenner said in a memo responding to the report. The government is prohibited by statute from instituting a price structure for drug payments under Part D.

House and Senate Democrats have introduced legislation that would create incentives for drug manufacturers to provide larger rebates for seniors in Part D plans. Drug companies that give larger rebates to low-income seniors would receive a proportional reduction in the rebates they are required to pay the government.

Conservatives have criticized the plan. The Democratic bill would increase Medicare drug plan premiums, said Grace-Marie Turner, president of the Galen Institute, a Washington think tank devoted to free-market health solutions. Costs would shift to the 17 million seniors who don't qualify for the rebates, she added.

But the legislation would save taxpayers an estimated $112 billion during the next 10 years, Sen. Jay Rockefeller (D, W.Va.) said July 21 during a Senate Committee on Aging hearing on drug costs. "All this legislation does is say that drug manufacturers have to give the same discounts to Part D that they give to Medicaid for low-income populations."

In the report, the OIG also reviewed payments for 100 brand-name drugs covered by Part D and Medicaid. Costs for 70 of the drugs differed by less than 2%. However, costs for more than half of the generic drugs under review differed by more than 15% between the programs.

In 2005, the Medicaid program paid more than $43 billion for prescription drugs, the OIG report said. That figure was cut in half in 2006, when costs shifted to Medicare Part D for those patients eligible for both programs. Medicaid drug costs were $26 billion in 2009. The Medicaid program has recouped 29% to 38% of its prescription drug costs through rebates between 2006 and 2009.

Part D costs totaled $60.5 billion in 2009. Trustees for the Medicare program expect those costs to increase to nearly $100 billion in 2015 and more than $150 billion in 2020.

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