Headline Risk: Drug Prices on Capitol Hill

Do you want to know how big the drug pricing issue will be for the rest of this year and into 2008?

Just watch the headlines and level of outrage over the next few days in twelve congressional districts following yesterday's release of Chairman Henry Waxman’s House Oversight and Government Reform Committee report on Part D prices.

Waxman rounded up a dozen representatives to sign onto the report, “Private Medicare Drug Plans: High Expenses and Low Rebates Increase the Costs of Medicare Drug Coverage” (see table). The 12 Democrats cover a geographical region from Maryland to Minnesota and Iowa, Tennessee to Vermont.

If the report can break through and dominate local news in those reasons, expect Waxman to move forward with an effort to bring the drug pricing and Part D programs back into the political spotlight, with a hearing or further request for information from Part D plans. Waxman’s oversight committee staff extracted the pricing information for the October 15 study from private plans by threatening to subpoena the information last spring. A hearing on the report was scheduled for Thursday, October 11 but was postponed.

Dennis Kucinich, one of the Part D report co-sponsors and a politician with national recognition as one of the pack of presidential candidates chasing Senators Clinton and Obama and former Senator Edwards, headlined the release of the report: “Private Medicare Drug Insurers Are Driving Costs Through The Roof.”

The biggest political vulnerabilities for the Part D plans are charges that the administrative cost of the private system is exceeding a government-administered program and that the plans are not offering seniors savings on drug costs during the coverage gap (donut hole).

Using private data and bidding information provided by 12 large Part D companies (representing 318 drug and Medicare Advantage plans), Waxman calculated that each Medicare beneficiary pays $180 a year to cover overhead and profits to administer the program: $107 for administration; $30 for sales and marketing; $43 for profits. Spread over the entire Part D beneficiary population of 24.1 million, that creates an administrative cost estimate of $4.3 billion.

The donut hole pricing may be especially timely as a political issue as the fall season marks the point at which many beneficiaries move out of the federal subsidized drug costs and into the 100% patient-pay coverage gap. The report notes that the Medicare Modernization Act called for beneficiaries to get the plans discounted prices for drugs in the coverage gap.

“Despite the requirements of the law,” the Waxman report charges, eleven of the 12 insurers which provided information to Waxman “will not pass the drug rebates they receive in 2007 through to beneficiaries in the form of lower prices at the pharmacy counter.”

Waxman estimates that the rebates on donut hole out-of-pocket expenditures by beneficiaries will contribute $1 billion in profits to the plans. The report notes that plans say that the rebate dollars are used to reduce premiums, but the report notes that several plans “conceded” that they retain a portion of rebate payments as profits.

The full report can be found here.