Part B, which was launched in 1966, covers drugs administered in a doctor’s office or outpatient hospital setting. But Medicare did not offer a pharmacy benefit until 2006, when Part D was implemented. This marked the beginning of prescription drug coverage for seniors (65+) and people with disabilities. Unfortunately, despite Medicare’s size, its administrators in the Centers for Medicare and Medicaid Services (CMS) are prohibited by law from “interfering” with price negotiations between Part D sponsors and drug manufacturers. As a result, taxpayers and consumers ultimately pay far more for prescription drugs than necessary.
This situation is the result of Section 1860D-11 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (P.L. 108-173), which created Part D but contained the prohibitive language:
‘‘(i) NONINTERFERENCE.—In order to promote competition under this part and in carrying out this part, the Secretary— ‘‘(1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and ‘‘(2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.
Overall, Medicare Part D was a much-needed response to the soaring cost of drugs needed by seniors with chronic illnesses. But the restrictive language has been aptly described as “a landmark in corporate welfare.” As reported in the Huffington Post, one of the MMA’s chief architects was Rep. W.J.”Billy” Tauzin, (R-LA), who chaired the House Energy and Commerce Committee from 2001 until early in 2004, after which he became chief lobbyist for Pharmaceutical Research and Manufacturers of America—the drug industry’s main trade association – with an annual salary of $2 million.
In contrast to Medicare, Medicaid and the Veterans Health Administration are allowed to negotiate drug prices. An analysis, published by Carleton University and the Public Citizen Health Research Group, concluded that for brand-name drugs, Medicare Part D has paid an average of 73% more than Medicaid and 80% more than the Veterans Health Administration and would save at least $15 billion a year if it could secure their lower prices.
The Medicare Drug Price Negotiation Act of 2015 would remove this obstructive ban, effectively allowing CMS to use contracting mechanisms, negotiations, and formulary mandates to bring down drug prices that are billed through Medicare. In the Senate, this bill was introduced by Sen. Amy Klobuchar (D-MD) – Senate Bill 31 – and has eight cosponsors, including Vice Presidential Candidate Senator Tim Kaine (D-VA) and Senator Bernie Sanders (D-VT). An identical bill – H.R. 3061 – was introduced in the House by Rep. Peter Welch (D-VT) and has 30 cosponsors.