After President Obama suggested reducing "taxpayer subsidies to prescription drug companies" as an avenue for Medicare savings in his State of the Union speech, the Pharmaceutical Research and Manufacturers of America trade group went on the offensive, saying it would "upend the successful Medicare Part D prescription drug program by imposing government price controls on it" and "harm Part D's competitive dynamics, yielding higher premiums."
President Obama has in the past proposed changing Medicare Part D's rebate structure and aligning it with Medicaid, although White House officials told Reuters he was specifically referring to rebates for the nation's 9 million dual eligibles, which the Congressional Budget Office estimates would save Medicare $137 billion.
Another proposal -- probably more politically fractious -- has been to change Medicare drug formulary inclusion requirements or eliminate them, along the lines of the Department of Veterans Affairs' formularies. Considered somewhat less generous than Medicare, with no inclusion requirements, VA drug's have been estimated to cost about 50 percent less than Medicare, which is required to include "all or substantially all" drugs in six categories.
Comparing the VA's drug pricing to Medicare's from 2007 to 2009, a team of healthcare economists led by Austin Frakt at the Boston University School of Public Health found that the VA's formulary policies "are effective in driving prescribing patterns, achieving substantial price reductions from manufacturers and dramatically decreasing drug spending."
If Medicare could reduce its costs 40 percent by switching to VA-like formularies, the program could save as much as $510 annually per non-dual eligible enrollee, Frakt and colleagues found, writing in Health Economics. If those savings could be extended to all of the 27 million Part D enrollees, Medicare could save about $14 billion a year, they found.
Medicare's drug formulary covers about 85 percent of the 200 most popular prescription drugs, and the VA 59 percent. The analysis also found that if Medicare tightened its formulary generosity, in line with the VA, the average beneficiaries would lose $405 in value annually, in the loss of choice of drugs. But they would be paying less, Frakt says. Average beneficiaries "would be precisely indifferent between the loss of drug choice and $405 dollars in cash," Frakt wrote on his blog.
The analysis shows that formulary generosity would likely shift demand, "reflecting preferences for more choices combined with effects of formulary design on donut hole timing and perhaps other effects." Although VA and Medicare beneficiaries might have different drug needs and cost-benefit perspectives, Frakt says there is some overlap, in the fact that almost half of the nation's 21 million veterans are over 65, and represent 30 percent of Medicare beneficiaries.
Either way, Medicare Parts A,B,C and D may be in for tweaking in the coming years, if the rhetoric of both political parties is to be believed. Meanwhile, researchers are still tracking, and sometimes arguing about, the costs and impacts of the program. A 2011 study by economists Gary Engelhardt and Jonathan Gruber found that Medicare Part D reduced out of pocket spending for seniors, but also increased overall costs.