MEDICARE PART D

Outline

• Introduction: Overview of Medicare and Medicare Part D

• Part D is a Successful Program

• Deficit Reduction and Medicare Part D

• Government Price Controls:

– Could Undermine Part D’s Success

– Are Not the Right Way to Grow the Economy

– Risk Raising Costs and/or Hindering Access for Seniors

– Could Slow or Stop Development of New Medicines

Introduction: MEDICARE Overview

• Part A (1966): Inpatient hospital and post-acute care.

• Part B (1966): Physician, outpatient hospital, drugs that are not self-administered.

• Part C (1984): Part A and Part B services provided by a health plan, now called Medicare Advantage.

• Part D (2006): Outpatient prescription drugs

Introduction: How MEDICARE Part d works

• Part D is unique in Medicare because it is based on competition, not government-set prices.

• Part D plans compete to deliver affordable coverage for beneficiaries and value for taxpayers.

• Enrollees choose the plan with the coverage and costs that meet their needs.

• Extra help is available for enrollees of limited means.

• Government sets standards and oversees competition.

PART D EXPANDED SENIORS’ ACCESS TO MEDICINES

In 2011, 90% of people with Medicare have comprehensive drug coverage.

Med

icar

e B

ene

fici

arie

s

24M24M(59%)(59%)

42M 42M (90%)(90%)

Source: The Lewin Group, September 2006; and Kaiser Family Foundation “The Medicare Prescription Drug Benefit” November 2011.

SENIORS LIKE PART D

Steady high satisfaction rate

Somewhat Satisfied

VerySatisfied

78%90%

“Overall, how satisfied are you with your prescription drug coverage?”

Source: KRC Research Surveys conducted for the Medicare Rx Education Network and Medicare Today.

$37

$47

$56

$23$28 $30

$0

$10

$20

$30

$40

$50

$60

2006 2009 2012

Average Monthly Part D Beneficiary Premium, 2006-2012

Original Projection

Actual

Average Part D beneficiary premium in 2012 is $30 – 44% below original projection

Source: All original projection estimates are taken from 2004 Medicare Trustees Report, p. 164 and rounded to the nearest dollar. Actual average premium figures for 2006, is taken from 2008 Medicare Trustees Report, p. 180; 2009 average premium taken from CMS Press Release, “Lower Medicare Part D Costs than Expected in 2009”, August 14, 2008; Average premium for 2012 is taken from CMS Press Release, “Medicare prescription drug premiums will not increase, more seniors receiving free preventive care, discounts in the donut hole” August 4, 2011.

SENIORS ARE SAVING MONEY WITH PART D

$334.4 Billion Less

Comparison of CBO Projections and Tallies of Total Part D Spending for 2004-2013, in Billions

Projected total cost of Part D has dropped 43%

Source: PhRMA analyses of data from CBO Medicare Part D Baselines for 2004-2012.

PART D’s COST IS FAR BELOW PROJECTION

Harvard researchers writing in the Journal of the American Medical Association report1:

• Part D is associated with reduced nondrug medical spending for beneficiaries with limited prior Rx coverage.

• Part D saves Medicare about $1,200 per year in hospital, nursing home and other costs for each senior who previously lacked Rx coverage.

PART D HELPS AVOID COSTLY HOSPITAL AND NURSING HOME CARE

1 J.M. McWilliams, “Implementation of Medicare Part D and Nondrug Medical Spending for Elderly Adults with Limited Prior Drug Coverage, ” Journal of the American Medical Association, 306 (27 July 2011): 4, 402-409.

•Recent policy changes proposed by some members of Congress and the Administration would impose government price controls in Part D.

•This would require manufacturers to pay tens of billions of dollars in rebates to the government – in addition to the savings the program already provides to seniors and the rebates already being paid to Part D plans.

DEFICIT REDUCTION AND MEDICARE PART D

THESE PROPOSED CHANGES TO PART D SHOULD BE OPPOSED BECAUSE:

1. The changes would undermine Part D’s success.

2. Government price controls are not the right way to grow the economy.

3. Economists agree that introducing Medicaid-style rebates into Part D risks raising costs and/or tightening access for seniors.

4. Imposing government rebates on Part D could slow research on diseases disproportionately affecting Medicare beneficiaries.

Employees contacting Members of Congress about Part D is essential to sustaining this successful program and our industry’s capacity to fully contribute to better health and a stronger economy.

GOVERNMENT PRICE CONTROLS ARE NOT THE RIGHT WAY TO GROW THE ECONOMY

• Battelle Institute estimates that a $10 to $20 billion per year reduction in sector revenue – the same magnitude as policies recently proposed by the Administration and some in Congress – would result in 130,000 to 260,000 lost jobs.

• The sector supported a total of 4 million U.S. jobs in 2009, including 674,192 direct jobs.

• In 2009, each job in a biopharmaceutical research company supported almost 5 additional jobs in other sectors.

Source: Battelle Technology Partnership Practice, The U.S. Biopharmaceuticals Sector: Economic Contribution to the Nation, July 2011, http://www.phrma.org/sites/default/files/159/2011_battelle_report_on_economic_impact.pdf

3. MEDICARE PART D HAS AVOIDED THE TYPE OF GOVERNMENT-IMPOSED ACCESS

RESTRICTIONS COMMON IN MEDICAID.

• Beneficiary choice among plans and the availability of a range of

affordable options are key components of Part D, promoting both

affordability and access to medicines. A Lewin Group study found that in

2011 the Part D plans with the highest and second highest enrollment

covered 99 percent and 94 percent, respectively, of the top drugs most

often prescribed to those 65 or older.

• All Part D enrollees may change plans on an annual basis in order to

maintain prescription drug coverage that fits their cost and coverage needs,

and those who are dually eligible may change plans at any time, unlike

Medicaid where enrollees are typically restricted to the state’s preferred

drug list (PDL). 1. Lewin Group analysis for PhRMA, “2010 Comparison of VA National Formulary and Formularies of the Highest Enrollment Plans in Medicare Part D and the Federal Employee Health Benefit Program” March 16, 2010.2. Beneficiaries who qualify for the low-income subsidy may change throughout the year.

ECONOMISTS FIND THAT GOVERNMENT PRICE CONTROLS IN PART D RISK INCREASING COSTS

FOR SENIORS AND OTHER CONSUMERS

• Analysis by a former Congressional Budget Office Director indicates beneficiary premiums in Part D would increase by 20-40 percent.1

• According to the former Chief Actuary of Medicare, “if this [rebate] policy is adopted, patients will bear the cost…” with “tighter formularies and less access to newer or more expensive drugs.”2

1. July 21, 2011, “Cost Shifting Debt Reduction to America’s Seniors: Medicare Part D Rebates Would Dramatically Increase Drug Premiums”, Douglas Holtz-Eakin and Michael Ramlet http://americanactionforum.org/sites/default/files/AAF_Part%20D%20Financial%20Impact%202%20.pdf

2. Guy King and Joe Antos, “Tampering with Part D Will Not Solve Our Debt Crisis.” AEI Health Studies Working Paper 2011-03, June 29, 2011 http://www.aei.org/paper/100234

IMPOSING GOVERNMENT PRICE CONTROLS ON PART D COULD HARM CAPACITY TO DEVELOP NEW

MEDICINES

• CBO: Imposing price controls in Part D could “reduce the amount of funds that manufacturers invest in research and development of new products.”1

• Department of Commerce: Foreign government price control strategies “tend to have the most significant impact on the newest and most innovative medicines…”2

• Reducing investment in research could slow medical progress in Alzheimer’s and other conditions where patients have urgent needs and where costs will skyrocket without new treatments.

1. CBO , “Reducing the Deficit: Spending and Revenue Options” March 10, 2011, p. 54. http://www.cbo.gov/doc.cfm?index=120852. “Pharmaceutical Price Controls in OECD Countries, Implications for U.S. Consumers, Pricing, Research, and Development, and Innovation ” U.S. Department of Commerce, International Trade Administration (December 2004).

REVIEW: MANDATORY REBATES IN PART D SHOULD BE OPPOSED BECAUSE:

1. Government price controls would disrupt a highly successful program.

2. Price controls are not the right way to grow the economy.

3. Introducing Medicaid-style rebates into Part D could raise costs and limit access for seniors.

4. Imposing Medicaid rebates on Part D could slow research on diseases disproportionately affecting Medicare beneficiaries.

DISCUSSION