Prices charged for the category of drugs known as “specialty medications” are exploding so quickly that they’re now a key source of concern for both consumers and Congress. Specialty drugs include those used to treat cancer, multiple sclerosis and rare health conditions. Spending on these drugs under Medicare almost quadrupled in recent years, rising from $8.7 billion in 2010 to $32.8 billion in 2015. On the other hand, spending on the same drugs under Medicaid, the program that provides healthcare for low-income Americans, grew much more slowly over the same period, rising from $4.8 billion to $9.9 billion.
The difference in drug prices between the two programs is due to two reasons. Under Medicare Part D, the government isn’t negotiating drug costs on behalf of beneficiaries, and Part D has no cap on out-of-pocket spending for prescription drugs. The lack of a cap acts as a perverse incentive for drug makers and drug plans to get beneficiaries to use the most expensive drugs, because Medicare reimburses drug plans 80% of the cost in the final catastrophic phase of coverage. The higher the cost of the drug, the more drug plans receive from Medicare. Medicare patients who rely on such medications could owe thousands of dollars out-of-pocket every year for a single drug, even when their Part D plan covers the drug.
According to a new analysis from the Congressional Budget Office, in 2015, the weighted average net price for top-selling brand name specialty drugs in Medicare Part D was $3,600 for a 30-day supply, almost twice as much as the weighted average net price of $1,920 for the same drugs in Medicaid. The big difference is how drug prices are determined.
Under Medicare Part D, the government does not negotiate prices like it does for doctors’ or hospital fees. Drug prices are established by the private insurers who run Part D drug plans. Those prices are based on what the plans negotiate with drug manufacturers and what drug plans want to make on the drugs in order to operate at a profit. Under current law, however, even when drug plans negotiate a rebate, the law does not require that plans pass the savings along to consumers.
On the other hand under Medicaid, net drug prices are heavily influenced by two rebates that are required by law. Manufacturers of brand name drugs must pay a rebate equal to 23.1% of the average price that manufacturers charge to pharmacies. In addition, for generics, manufacturers are required to pay a rebate of 13% of the average price they charge to pharmacies.
TSCL is working with Members of Congress for enactment of legislation in both the House and Senate that would require Medicare to negotiate drug prices on behalf of Medicare beneficiaries. Recently TSCL launched a nationwide grassroots effort to urging Americans to contact Members of Congress to protest how big drug companies are getting away with steep prices on drugs, and to urge them to enact legislation that would make Medicare responsible for negotiating drug prices. Join the effort, sign our petition!
Sources: Prices for and Spending on Specialty Drugs in Medicare Part D and Medicaid, Congressional Budget Office, March 2019.