Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


MedPAC Pushes for More Competitive Medicare Drug Purchases

By Kerry Young, CQ Roll Call

June 15, 2016 -- A federal advisory panel on Wednesday urged lawmakers and Medicare officials to consider a number of approaches for reining in the growth of the program's spending on drugs, including a set of recommendations for the Part D pharmacy plans that might save roughly $10 billion over five years.

In an annual report to Congress, the Medicare Payment Advisory Commission took a comprehensive look at how the nation's single biggest purchaser of health care can manage its prescription drug costs. Francis J. Crosson, who became MedPAC's chairman last year, has highlighted this work as a priority for the panel. Medicare spent $112 billion in 2013 for prescription drugs, accounting for about a third of pharmaceutical sales in the United States.

"Because the Medicare program accounts for such a large share of overall drug spending, program payment policies can have a significant financial effect on health care providers and other parts of the industry, including pharmaceutical manufacturers, drug supply chains, pharmacies, pharmacy benefit managers, and insurers," the commission wrote in its report.

MedPAC suggested steps for sharpening both the negotiations that insurers handle for the Part D program and Medicare's approach to paying through the Part B program for drugs administered in doctors' offices. The Part D guidance was within a set of formal recommendations, while MedPAC's suggestions for addressing the prices of Part B drugs are not yet as developed.

MedPAC said the Congressional Budget Office estimated about $10 billion in potential savings over five years for its package of Part D changes. This could catch the eye of lawmakers looking for ways to offset the costs of future legislation, although changes to Part D would draw opposition from pharmaceutical and hospital trade associations. MedPAC suggested having Medicare remove two kinds of drugs, antidepressants and immunosupressants used by transplant patients, from the classes of medicines that are required to be broadly covered, which limits insurers' ability to drive bargains.

MedPAC also suggested making a Part D reinsurance program that shields insurance companies from steep losses less generous to insurers. Reinsurance provides funding to insurers when a customer of the Part D plans has pharmacy bills that top $7,517 a year, a threshold known as the catastrophic spending level. The reinsurance program accounted for about 38 percent of the $73.3 million Medicare spent for the Part D program in 2014, up from 17 percent of $46 billion in 2007, MedPAC said.

MedPAC recommended Medicare significantly lower the reinsurance payment to insurers to 20 percent of the costs above the catastrophic spending level, down from the current 80 percent of costs. Insurers thus would have more at stake in their negotiations over drug prices, MedPAC said.

"Assuming greater risk for high-spending enrollees would likely require plans to reevaluate their overall bidding and operational strategy," MedPAC said. "For example, plan sponsors might bargain more aggressively with drug manufacturers over rebates and prices."

In the report, MedPAC didn't specifically address a controversial Medicare proposal regarding the payment for Part B drugs administered in doctors' offices. Drugmakers and Republicans in Congress are pushing for Medicare to withdraw the plan, first released in March. Medicare has not given a timeline for when it will release a revised final version of the plan.

The new report from MedPAC indicates a broader concern with the rising costs of drugs, beyond the relatively small initial step proposed in the Part B model. The proposal would switch some doctors away from the current reimbursement in which a premium of about 4.3 percent is added to the reported average sales price for medicine. They would instead get a premium of less than 1 percent with an added fee of $16.80 for administering drugs.

"If policymakers wish to influence Part B drug payments to a larger degree than possible through add-on payments, they could consider Medicare payment policies that create more incentives for price competition among drugs or that put downward pressure" on the average sales price, MedPAC wrote.

Among the approaches MedPAC suggested is combining certain similar drugs into a single billing code, thus creating price competition. Drugmakers complain that this approach would erode the high prices, and thus profits, that manufacturers say they need to fund their research. MedPAC noted there's not enough information for outside groups to assess how much money pharmaceutical companies require for these efforts, echoing a complaint that's been raised by critics of the industry.

"Currently, there is insufficient objective, transparent data available on the research and development costs of new drugs," MedPAC said.

Publication Details