Looking for Medicare Savings? Look No Further Than Big Pharma

Unlike some of the most discussed Medicare savings proposals, the Medicare Drug Savings Act finds savings where there is money to be found, from a windfall the pharmaceutical industry -- not from the empty pockets of people with Medicare.
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Yesterday, 19 Senators and several ranking House members introduced the Medicare Drug Savings Act of 2013 to secure over $140 billion in Medicare savings. This straightforward bill, endorsed by over 30 of the nation's leading health and aging advocates, would restore the federal government's ability to secure more reasonable drug prices for low-income people with Medicare. Unlike some of the most discussed Medicare savings proposals, this option finds savings where there is money to be found, from a windfall the pharmaceutical industry received when Medicare Part D was created in 2006 -- not from the empty pockets of people with Medicare.

Looking Back at Big Pharma's Big Win

Passage of the Medicare Modernization Act of 2003 (MMA) meant big money for drug manufacturers. In 2006, the law created much-needed coverage for prescription medications, known as Medicare Part D. At the same time, the legislation severely limited the federal government's ability to keep Medicare drug prices down.

The MMA altered drug coverage for people with both Medicare and Medicaid, moving these dually eligible beneficiaries into Medicare Part D plans. As a result, Medicare lost drug manufacturer discounts still made available to the federal government for Medicaid. The MMA also expressly prohibited the federal government from negotiating Medicare drug prices.

In short, the nation's largest purchaser of prescription drugs -- Medicare -- was hampered from seeking the best possible prices. This created a windfall for Big Pharma and higher drug prices for the Medicare program, for beneficiaries and for taxpayers. One analysis shows that the combined profits of the largest drug manufacturers skyrocketed in the first year of Medicare Part D -- increasing by 34 percent or $76.3 billion. All told, the 11 largest drug manufacturers have pocketed over $711 billion in profits over the last 10 years.

Restore a Common Sense Cost Saver, Don't Cost Shift

The 2013 Medicare Drug Savings Act introduced today, led by Senator Rockefeller and Congressman Waxman, offers a simple solution: restore Medicare drug rebates lost in 2006. In other words, allow the Medicare program to benefit from the same discounts Medicaid receives for people with low-incomes and eliminate the windfall pharmaceutical manufacturers received.

Restoration of the Medicare drug rebates is both a common sense cost saver and a better deal for American taxpayers, whose contributions to Medicare should be spent wisely and efficiently. The plan shifts no costs to people with Medicare and maintains access to needed medicines. In fact, restoration of the Medicare rebates may translate into lower Medicare Part D premiums for older adults and people with disabilities.

Any debate about Medicare spending must start with a close look at the economic reality for the older adults and people with disabilities who depend on Medicare's guaranteed health benefits. Nearly 25 million people -- half of the Medicare population--live on annual incomes of $22,500 or less. On average, people with Medicare spend 15 percent of their total income on health care costs, three times that of non-Medicare households.

Most people with Medicare cannot afford to pay more, like David who called our helpline to find help paying for his heart medications. David lives on $1,400 per month (about $17,000 per year) and the cost of his prescriptions soared to $500 per month after a recent heart attack. After paying for his rent, food, car insurance, gas and electric bills and health care premiums, David cannot afford these extra copayments. Because David's income disqualifies him for programs that would help to cover this expense, David must make a distressing choice -- to pay the electric bill or to pay for a needed prescription?

Like David, members of Congress face a choice: to eliminate excessive pharmaceutical spending or to force people with Medicare to pay more for health care? Unlike David's stark choice, this decision should be a simple one.

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