Drug companies were spared from mandatory rebates when Medicare Part D, the prescription drug benefit for seniors and the disabled, took effect in 2006.
Rather than being forced by federal law to offer rebates, drug companies can negotiate discounts with private insurers and pharmacy benefit managers, a competitive environment that many contend has helped keep premiums low and contained spending growth.
But the federal government has found that the rebates drug companies offer for brand-name drugs in Medicare Part D are substantially lower than rebates for the same drugs in Medicaid, the federal and state health insurance program for the poor, where rebates are set by law.
U.S. Sen. Brian Schatz is among the Democrats — including President Barack Obama — who want to end what they consider a windfall for the drug industry. Schatz and others would require drug companies to offer more generous rebates to the government for low-income seniors and the disabled in Medicare Part D, including the 9 million eligible for both Medicare and Medicaid. In Hawaii about 32,000 are eligible for both programs.
U.S. Rep. Colleen Hanabusa, who is challenging Schatz in the Democratic primary, fears that mandating larger rebates could backfire. She expressed concerns that requiring such rebates could drive up the price of drugs, lead to higher premiums for seniors and cause instability in Medicare Part D, a program that has been successful.
The policy difference is among the first to emerge between Schatz and Hanabusa. The two Democrats broadly share similar views on many of the most critical budget and social issues, so voters looking for black-and-white distinctions over the next year before the primary will have to dive deeper into policy.
The Congressional Budget Office has estimated that requiring larger rebates in Medicare Part D could save the government about $140 billion over a decade.
"I believe we should end that windfall and use that savings to strengthen Medicare and enhance benefits," Schatz said by telephone from Washington, D.C. "I think this is a pretty straightforward solution that will enhance the viability of the Medicare program without costing the taxpayers any money."
Hanabusa, however, said that the main sponsors of the legislation — U.S. Sen. Jay Rockefeller, D-W.Va., and U.S. Rep. Henry Waxman, D-Calif. — have cited deficit reduction as the primary motivation.
The congresswoman said that the CBO’s deficit projections have already dropped to $642 billion this year, down from $1.1 trillion last year, reducing the urgency to make changes to Medicare Part D that could be risky for seniors.
"I don’t want to do deficit reduction on the backs of the seniors, because that’s exactly what’s going to happen with Part D," she said by telephone from Washington. "They’re going to end up having to probably pay a higher premium."
Medicare Part D, created in 2003 under President George W. Bush and in effect since 2006, has been effective at expanding access to drug coverage for seniors and the disabled. The $62 billion-a-year program provides a subsidized drug benefit to about 36 million of the 54 million on Medicare.
Nine million are eligible for both Medicare and Medicaid, a population of low-income seniors and disabled who often have more serious health care needs. These so-called "dual eligibles" had previously received prescription drugs under Medicaid but were moved into Medicare Care Part D when the program took effect.
The CBO has found that annual spending for Medicare Part D is significantly less than initially had been estimated, mostly because of lower growth in per capita drug spending and lower enrollment. But Medicare Part D is expected to grow faster over the next decade than other parts of the Medicare program.
In his State of the Union address in February, Obama vowed to "reduce taxpayer subsidies to prescription drug companies" along with other changes to control costs in Medicare. The president proposed in his fiscal year 2014 budget that drug companies provide the government the same rebates for brand-name and generic drugs in Medicaid to low-income seniors in Medicare Part D.
The AARP, the National Committee to Preserve Social Security and Medicare, the AFL-CIO and others have supported a requirement for larger drug rebates in Medicare Part D.
The Pharmaceutical Research and Manufacturers of America, known as PhRMA, which represents the leading drug companies, has led the opposition. PhRMA has warned of the potential for higher premiums for seniors, restricted access to drugs and diminished research into new medicines.
Framing the debate as the government and low-income seniors vs. the drug companies would be too simplistic, however. Several other interest groups have sided with PhRMA, including the Asian & Pacific Islander American Health Forum, the National Asian Pacific Center on Aging, and the National Council of Asian Pacific Islander Physicians.
Schatz said the government ought to be able to obtain the best prescription drug deal possible for low-income seniors, as it does for patients in Medicaid and the U.S. Department of Veterans Affairs.
"I’m all for the industry making a healthy profit," he said. "But when it comes to utilizing taxpayer dollars, I believe in using the leverage of the purchasing power of the federal government to get the best possible deal for the program and to spend as little as we can to try to get the maximum benefit for Medicare recipients."
Hanabusa called upon the AARP and others to look at whether deficit reduction, and not strengthening Medicare, is the motivating factor behind the legislation. She said she would support larger rebates in Medicare Part D if there was a guarantee that seniors would not be exposed to higher costs.
"If you can ensure that it’s not going to be passed on, then I’d like to see that," she said. "But no one has yet been able to say that it’s not going to be passed on."
