Private Insurers Do Not Receive Discounts From Drug Makers

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Nearly $15 billion could have been saved this year if privateinsurers that offer Medicare prescription drug plans had administrativecosts similar to those of Medicare and if they obtained discounts ondrugs similar to those received by Medicaid, according to a reportcommissioned by House Oversight and Government Reform Committee Chair Henry Waxman (D-Calif.) set to be released this week, the Wall Street Journal reports (Lueck, Wall Street Journal,10/13). The report reviewed administrative costs, sales costs, profitsand drug rebates of the 12 largest insurers participating in theMedicare prescription drug program -- including Aetna, Humana and CVS Caremark Group -- which cover a total of more than 18 million Medicare beneficiaries, or 75% of seniors enrolled in Medicare drug plans.

Congressionalresearchers found that the plans failed to pass along to beneficiaries$1 billion in rebates obtained from drug makers. The report also foundthat negotiated discounts under the program have reduced the amountspent on drugs by 8.1% -- far less than the average 26% savingsachieved by other government drug programs, such as the one managed bythe Department of Veterans Affairs.In addition, the drug benefit will cost taxpayers $180 per beneficiaryin administrative costs -- six times the cost of traditional Medicareprograms, the report states. Total administrative and sales expensesfor the 12 companies will reach $3.6 billion this year, not counting $1billion in profit (Woellert/Goldstein, Bloomberg,10/13). The report also states that the movement of Medicaidbeneficiaries to Medicare drug plans will "provide a $2.8 billionwindfall to pharmaceutical manufacturers" this year (Wall Street Journal, 10/13).

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Waxmansaid that "one positive result" achieved by the prescription drugprogram was that 59% of its prescriptions are filled with genericdrugs, compared with 54% for Medicaid (Bloomberg, 10/13). The report is the first external examination of data that previously had been available only to insurers and CMS, according to the Journal (Wall Street Journal, 10/13).

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Mohit Ghose, a senior vice president for America's Health Insurance Plans,said the report unfairly compared the overhead costs of Medicare'shospitalization and health coverage with overhead for the drug benefit,which is more complex. He said, "It's a disingenuous and falsecomparison. The competitiveness of the program is working," adding thatpremiums are running about 40% less than original estimates (Bloomberg, 10/13).

Accordingto AHIP President and CEO Karen Ignagni, "This program, on everymeasure, has beat expectations." She added that rebates and discountsare used to lower beneficiaries' out-of-pocket expenses and insurers'efforts to ensure that beneficiaries receive the proper drugs to helpreduce costs. Waxman's office declined to comment on the report (Wall Street Journal, 10/13).

Reprinted with permission from kaisernetwork.org. Youcan view the entire Kaiser DailyHealth Policy Report, search the archives, and sign up for email deliveryat kaisernetwork.org/email. The Kaiser Daily Health Policy Report is published for kaisernetwork.org, afree service of The Henry J. Kaiser Family Foundation.

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