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.

Buyer’s Remorse: No Love for Medicare Part D on the Campaign Trail

So Many Happy Faces! None are Running for President in 2008

The Medicare prescription drug benefit known as Part D has been an unmitigated blessing for Big Pharma at a time when good news has been hard to find. It has greatly expanded drug coverage for senior citizens, providing a boost in prescription volumes. And it has shifted a large chunk of the market out of the price controlled Medicaid program, giving a healthy margin bump for many blockbuster brands.

It is also a political orphan, one that will face an especially harsh winter as the primary phase of the Presidential campaign moves towards its climax.

The Democrats make no secret of how they feel about Part D. Remember price negotiation? The idea may have died in the Senate, but it will be reborn this fall once Congress finishes its serious legislative work. Expect hearings and reports criticizing Part D prices—with the themes trumpeted by the Democratic candidates on the campaign trail.

None of the front runners in the Democratic party supported Part D, though the thinking here is that they secretly love it. After all, the program pumps hundreds of billions of taxpayer dollars into federal health benefits while allowing the candidates to bash Republicans for catering to the profiteers in Big Pharma and the insurance industry.

The problem is, as Jeffrey Young writes in The Hill, even the Republican contenders have nothing nice to say about Part D. Its not that they are turning on the pharmaceutical industry per se, its just that they don’t see anything to gain from talking to conservative voters about a massive expansion to federal health care entitlements.

Its no different than the 2006 Congressional campaign, which featured Democrats around the country attacking Part D—and Republicans changing the subject. Supporters of Part D, like former CMS Administrator Tom Scully, claim that the Republican Party should have embraced the program during last year’s campaign, instead of running away from it. It certainly is hard to believe the GOP would have fared any worse in the elections if they had.

Still, if the Republican legislators who enacted Part D refused to brag about it in 2006, you can expect the Republican Presidential contenders to stay even farther away from it. As The Hill’s Young points out, one of the top tier GOP candidates—John McCain—actually voted against the law creating the program. Another, Fred Thompson, voted against earlier plans to create a drug benefit, but left the Senate before the Part D law passed in 2003. The rest of the leading Republican contenders were not in Congress when Part D passed and hence have no stake in defending the program.

So expect a winter of Democratic attacks on Part D, with little or no response from the Republican campaigns.

Once the Presidential campaign shifts gears to focus on the general election in November 2008—the party nominations could be locked up as early as the first week of February—the dynamics may change.

The Democratic nominee is sure to keep attacking Part D. But the Republican nominee may be more eager to counterpunch. With the nomination locked up, fear of alienating small-government conservatives may be less important than the opportunity to cast Part D as model for public/private partnerships in expanding health coverage across the US.

Until then, don’t expect too many kind words about Part D on the campaign trail.