May 10, 2000
Congressional Democratic Prescription Drug Plan Proposal Is Inadequate, Bill Is “Half A Pill”
WASHINGTON, D.C. — The Democratic proposal for a Medicare prescription drug benefit will do too little to curb ever-increasing prescription drug costs, Public Citizen said today.
“The proposal represents half a pill,” said Joan Claybrook, Public Citizen’s president. “While we commend President Clinton and Democratic leaders for putting forward a comprehensive proposal with a solid drug benefit, it has a wholly inadequate mechanism for reigning in skyrocketing prescription drug costs, which is the linchpin to ensuring that a benefit is affordable for taxpayers and sustainable for Medicare recipients.”
The two-page proposal, which is modeled on President Clinton’s plan with some modifications, would go further than Clinton’s original plan in providing catastrophic coverage. But it would rely on private regional networks to negotiate lower prices with pharmaceutical companies, which would not go far enough to curb drug costs.
“It’s shocking that Democratic leaders refused to incorporate into their proposal the best cost containment mechanism now before Congress, and that is the Prescription Drug Fairness for Seniors Act,” said Frank Clemente, director of Public Citizen’s Congress Watch.
That act, H.R. 664, sponsored by Rep. Tom Allen of Maine, would require that the best prices be offered to all Medicare beneficiaries, effectively cutting prices up to 40 percent from retail level. This would reduce drug company revenues a modest 3.3 percent because of the increased demand that would result from making the drugs more affordable, according to a Merrill Lynch analysis. The bill has more congressional support (152 House and 12 Senate co-sponsors) than any other prescription drug legislation.
“If the Medicare program can negotiate the fees it pays doctors and hospitals for their services under Medicare, surely we should do the same with drug companies, which is what the Allen bill would effectively accomplish,” Clemente said. “It would appear that the lobbying and advertising tactics of the Pharmaceutical Research and Manufacturers of America have scared off Democratic officials from doing what is in the best interests of their constituents. Obviously, America’s seniors are way ahead of the politicians of both parties on this one, as consumers are clamoring for Congress to stop drug company price-gouging.”
While the publicly released details of the Democratic proposal are very limited, if it follows the framework of President Clinton’s proposal of last year, as expected, it would have the following strengths and weaknesses:
* It would provide a universal drug benefit as part of the Medicare program (similar to that for hospital and physician services), rather than expanded private insurance coverage of prescription drugs, as proposed by Republican leaders.
* A beneficiary s out-of-pocket costs would be limited to $3,000 per year adjusted for inflation, which represents a substantial improvement over Clinton’s original proposal, which lacked such a cap. This should prevent the extreme economic hardship experienced by too many Americans with high drug costs.
* The plan would cover 100 percent of a Medicare beneficiary’s annual drug expenditures, including premiums, for seniors below 135 percent of the poverty level ($10,800 single/$13,600 couple). This would provide full coverage to nearly 13 million Medicare beneficiaries.
* The plan’s reliance on Pharmacy Benefit Managers (PBMs) to limit drug price increases is wholly inadequate. Even with the proposed improvements in how PBMs would operate, the administration estimates the savings at about 15 percent off retail; this compares very unfavorably to the 40 percent price reductions achievable under the Allen bill. PBMs have shown little success in controlling drug costs for the private sector, add a costly middle layer to drug transactions, employ perverse profit-generating practices that often favor high-cost drugs over lower-cost substitutes, and are being investigated for engaging in anti-consumer kickback schemes.
* Without strong measures to significantly lower drug prices and change industry marketing practices, rising prescription drug expenditures likely would rapidly erode the value of the annual cap. A 1999 Public Citizen analysis of the Clinton plan showed that the $5,000 cap in 2009 lost nearly three-fifths of its value, dropping it to $2,100 — nearly the same benefit level ($2,000) as 2002, when the program was slated to begin.
* The 50 percent cost sharing arrangement would still be a substantial burden for many seniors with high drug bills. Two-thirds of Medicare beneficiaries are above 135 percent of the federal poverty level ($10,800 single/$13,600 couple), which is the level at which the government would stop paying 100 percent of the beneficiaries premium costs ($25/month in 2002) and out-of-pocket costs. More than six in 10 Medicare beneficiaries are above 150 percent of the federal poverty level ($12,000 single/$15,000 couple) at which point there would be no assistance from the government for either the premium or out-of-pocket costs. Under the proposal, a widowed senior with $12,500 in annual income and a $4,000 drug bill would spend $2,300 on prescription drugs, or 18 percent of her annual income.