The White House has started pressuring the new deficit “super committee” to consider a radical change to the Medicare Part D prescription drug benefit. The President and his team want to install Medicare-style drug rebates in the program, forcing participating pharmaceutical companies to offer their medicines at artificially low prices.
This move is misguided. It will jeopardize jobs across the country, stifle medical innovation, and undermine the market mechanisms that have made Part D successful.
Created in 2003, Medicare Part D allows seniors to join a private insurance plan to cover the cost of their prescription drugs. As of last year, there were some 27.6 million Americans enrolled in 1,576 Part D plans. Medicare Part D benefits vary based on different formularies and the cost of particular drugs, but the program is popular and startlingly cost effective.
Despite nearly irrefutable evidence the program is a success, the White House’s bipartisan fiscal commission recently recommended that Medicare Part D adopt a rebate plan similar to how Medicaid handles prescription drugs. President Obama supports this move.
This proposal would have enormous repercussions for the broader economy. The proposed change to Medicare Part D “may lead to 260,000 U.S. job losses,” including about 2,200 positions right here in Washington, according to research recently published in Bloomberg.
The pharmaceutical industry spends enormous sums on development.
On average, a single new drug costs over $1 billion to develop. That $20 billion would provide valuable resources for scientists as they develop the next generation of cutting-edge, life-saving medicines. Without the revenue, research into many promising new drugs will grind to a halt.
The Washington-based pharmaceutical company I work for, ProteoTech, has worked in high-end drug development for over a decade. We can speak from personal experience that this work, while deeply rewarding, is often very costly and time-consuming. But that investment has lead us to develop therapies designed to prevent and treat the causes of devastating neurodegenerative diseases like Parkinson’s and Alzheimer’s.
Part D drug rebates would ripple to our bottom line, leaving less capital to invest in new lines of research.
The “reform” would also be needlessly complicated and more expensive. With Part D, seniors simply enroll in a familiar insurance plan and their drug costs are covered. In Medicaid, paying for drugs gets complicated - fast.
In Washington, we’re already familiar with the failings of the Medicaid drug scheme. In January, Walgreens threatened to stop filling prescriptions for Medicaid patients at 64 of its 121 locations in the state. Because of inadequate reimbursements, the drugstore chain noted it was losing money on 95 percent of all the brand name drugs is was dispensing to Medicaid patients.
By contrast, Medicare Part D encourages market competition where Medicaid discourages it. A recent study by University of Southern California and Boston University economists found that “on average, Part D lowered retail prices for commercial insured by 5.8 percent to 8.5 percent.”
Insurance companies have passed these savings on to consumers. Medicare Part D premiums have actually decreased six percent over the last five years.
Put simply, “Applying the Medicaid rebate rule to Medicare Part D would likely result in higher prices for consumers in the private sector,” says Yale economist Fiona Scott Morton. The CBO has further warned that legislation imposing this type of price control in Medicare Part D could increase premiums by as much as 20 percent.
There’s no question we need Medicare reform, and we need it soon. But this proposal won’t get us there. Lawmakers must keep Medicaid’s failed policies from undermining the critical healthcare and economic benefits of Medicare Part D.
Steve Runnels is the CEO of ProteoTech, a leading therapeutic drug developer based in Kirkland, WA.