As the Affordable Care Act tumbled along its rocky path to implementation, the media drew parallels between its disastrous rollout last fall and the bumpy debut of Medicare’s drug benefit—Part D—in 2006. Many of these pieces, quoting pols and wonks, framed it like this: Dems like the ACA, but hated Part D, a George W. Bush initiative; The GOP likes the drug benefit, but hates the ACA, an Obama initiative, and in the end it won’t matter because Part D has turned into a spectacular success. As Georgetown University research professor Sabrina Corlette told NPR, “[Part D is] an enormously popular program, no matter what your political persuasion.”
Popular, yes! A spectacular success? Maybe not, according to the Orange County Register’s Morgan Cook, who deserves a CJR laurel for her recent piece, “Medicare Part D: Profit trumps public interest.” Cook took a deep dive into Medicare Part D, and surfaced with a good and seldom-made challenge to the conventional wisdom—success! success!—surrounding the program. (As a reminder: Medicare Part D is, as Cook writes, “a voluntary prescription drug program to subsidize the purchase of prescription drugs by elderly and disabled Americans,” with costs controlled not by the federal government but by negotiations between private insurers and drug companies.)
Cook gives a nod to the program’s popularity—90 percent of beneficiaries say they are they are happy with their coverage—and notes that the benefit has lowered individual seniors’ costs for prescription drugs. And even though the federal government’s costs for the program have been lower than expected, Morgan writes:
[I]n other aspects Part D has been problematic. The promise that free-market competition among insurance companies would result in the lowest drug prices for seniors and taxpayers has proven mostly false. The elderly and disabled have unwittingly paid millions more than necessary because of the federal government’s failure to control misleading sales pitches, profiteering, fraud and waste. Since Part D, pharmaceutical companies have made hundreds of millions in new profits, sometimes in dishonest ways.
She reports that the price of brand name drugs has been climbing dramatically under Part D, about three times faster than general inflation. For some drugs, health plans pay the highest prices in the world. But even though the government may be spending less than initial estimates, that doesn’t mean they are always getting a bargain. And some seniors are paying more. It’s that Great Cost Shift again. Cook points out that some Part D plans saddle seniors with copays higher than the cash price the uninsured would pay at a discount pharmacy. Janet Renison—who suffers from post-polio syndrome, for which she says generic drugs don’t work well—told Cook her copays begin to exceed $500 a month in March of each year, and this October, she said, were nearly $700 a month.
A few months after Obamacare became law, a study of drug prices by the AARP warned that retail prices for some of the most widely used brand-name drugs had increased more than eight percent in 2009, and many drugs used by beneficiaries “far outstripped the price increases for other consumer goods and services.” At the time, Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota and the report’s co-author, observed, “drug prices have gone up since Part D began; they haven’t gone down. We thought these plans would negotiate better prices, but they haven’t.”
Cook picks up the story from there, laying out a laundry list of reasons why seniors like Janet Redison have humongous drug bills despite the drug benefit. When Part D passed in 2003, Democrats argued that allowing private insurers to negotiate drug prices and provide coverage was the proverbial fox guarding the hen house. They wanted the government to negotiate prices the way it does for the VA program. Republicans won the fight. Former Medicare administrator Mark McClellan sold Congress, arguing that insurers have every incentive to drive hard bargains with drug companies, and private negotiations between carriers and drug makers “will achieve comparable or better savings than direct negotiations between the government and manufacturers.” Cook found research and government studies showing that reality has not matched such expectations.
She explores price misrepresentations by pharmacies and health plans, inaccurate price reporting, and marketing that encourages “off-label” uses of drugs as well as “shady, kickback-like deals to encourage the use of brand-name drugs” instead of cheaper generics. Even the mechanics of the drug law itself are to blame, allowing “the majority of plans” to overestimate their costs which, in turn, causes seniors and taxpayers to overfund them. In short, a provision of the law becomes what Cook calls a “profit center.” Unlike Medicare Part D, Medicaid requires drug companies to pay rebates when the prices of brand-name drugs rise faster than inflation, she reports, and cites a 2011 Department of Health and Human Services study that found rebates had lowered expenditures for the 100 brand-name drugs studied by 45 percent. Strong industry pushback has made it impossible for similar rebates in the Medicare program.
Cook also touches on the consumer’s role in all this, and her reporting shows that they are not exactly behaving as the market advocates predicted. They do have a huge choice of plans, but are sticking with higher-priced plans—which reflect all the industry’s shenanigans—rather than switching to ones that cost less. Perhaps it’s too difficult and confusing to make a new choice each year. Here’s the real parallel with the ACA’s state shopping exchanges: They are every bit and maybe more complicated than shopping for Part D drug coverage. Will they move the health insurance market to lower premiums, as supporters of the drug bill predicted?
“To many critics,” writes Cook, “the Part D story is a cautionary tale of what happens when crucial government programs are placed in the hands of private industry. Profits trump the public interest.” The Part D story needs more press attention. It needs something more than the occasional announcement in the fall about the opening of a new enrollment period, and something more than dueling quotes from supporters of greater cost-shifting to beneficiaries and rebuttals from their opponents. The Part D story needs explanation in the context of Obamacare, and that calls for actual reporting rather than political speculation from parties with big dogs in the fight. The Register shows calm, careful analysis of a tough subject is still possible.
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