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Details for: CMS ACTUARIES CONCLUDE THAT H.R. 4 WOULD HAVE NO EFFECT ON LOWERING DRUG PRICES



For Immediate Release: Thursday, January 11, 2007
Contact: CMS Media Relations
202-690-6145


CMS ACTUARIES CONCLUDE THAT H.R. 4 WOULD HAVE NO EFFECT ON LOWERING DRUG PRICES
BILL REQUIRING GOVERNMENT INTERFERENCE IN NEGOTIATIONS OF DRUG PRICES OFFERS NO SAVINGS

 

Independent actuaries at the Centers for Medicare & Medicaid Services (CMS) have reviewed H.R. 4 and concluded that government negotiations mandated in the bill would not produce any savings.

"Although the bill would require the Secretary to negotiate with drug manufacturers regarding drug prices, the inability to drive market share via the establishment of a formulary or development of a preferred tier significantly undermines the effectiveness of this negotiation," explained Paul Spitalnic, Director of the Parts C and D Actuarial Group in the Office of the Actuary.  "Manufacturers would have little to gain by offering rebates that aren't linked to a preferred position of their products, and we assume that they will be unwilling to do so."

Spitalnic continued:  “The actuaries expect that the Part D plans will continue to be the source of meaningful negotiations with manufacturers as they will continue to have the authority to establish formularies and define a preferred tier.  We would not expect H.R. 4 to have any effect on these negotiations or the prices that are ultimately paid by Part D."

In a January 10th  letter on H.R. 4, the Congressional Budget Office (CBO) noted: “CBO estimates that H.R. 4 would have a negligible effect on federal spending because we anticipate that the Secretary would be unable to negotiate prices across the broad range of covered Part D drugs that are more favorable than those obtained by PDPs under current law.”   

“Part D drug plans produced greater-than-expected savings by competing for Medicare beneficiaries and aggressively negotiating with drug companies,” said Leslie V. Norwalk, Acting Administrator of CMS. “Strong, competitive bids and informed beneficiary choices are bringing down premiums, without government interference in drug price negotiations.”

Earlier this week, Health and Human Services Secretary Michael O. Leavitt noted that the most recent Part D budget estimates show that payments to Part D plans are projected to be $113 billion lower over the next ten years.   “Importantly, of the $113 billion reduction, $96 billion is a direct result of competition and significantly lower Part D plan bids,” Norwalk added.

According to the CMS Office of the Actuary, the estimates of costs for the Medicare Part D prescription drug benefit for the FY 2008 budget cycle show that net Medicare costs are now expected to be 30 percent less -- $189 billion lower -- than originally predicted when the benefit was created in 2003.  In addition, based on strong, competitive bids by health care plans for 2007, average monthly premiums for the basic benefit will be approximately $22 for beneficiaries, down from $23 in 2006.  The original estimate for 2007 premiums was $38.

Moreover, while there are currently over 23 million Medicare beneficiaries receiving drug coverage through Part D prescription drug and Medicare Advantage plans, plans negotiating prices with drug companies and pharmacies cover about 241 million people, or 80 percent of the population.  Indeed, these are the same companies that negotiate on behalf of members of Congress for their prescription drugs.

“The bottom line from the news today is that beneficiaries are paying less in premiums and taxpayers are seeing billions of dollars in lower costs, without the need for government to interfere and reduce access or convenience for beneficiaries,” concluded Acting Administrator Norwalk.

 


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