Prices under Medicare prescription drug plans for 10 of the most prescribed brand-name medications have increased 6.8% since December 2006, while wholesale prices for the same drugs have increased 3%, according to a House Oversight and Government Reform Committee report, the Washington Post reports. Previously, Medicare actuaries had projected that drug prices would increase by 7% over the entire year.

According to the report, insurance companies that offer Medicare drug plans likely will negotiate rebates from pharmaceutical companies that amount to 4.6% of total drug costs this year, compared with 5.2% last year. Medicare actuaries previously had estimated insurers in 2007 would obtain rebates of 6%. According to the Post, a reduction in discounts from 6% to 4.6% over 10 years would result in about $17 billion in unanticipated prescription drugs costs for beneficiaries and taxpayers, with all of the additional money going to drug companies.

In addition, committee investigators found that premiums for Medicare drug plans have increased by 13% since the prescription drug program went into effect last year. According to the Post, the impact of the data on seniors is "not completely clear" because most who have enrolled in the program have selected plans with low deductibles, so they would not "see the full impact of drug price increases" until they hit the plan's coverage gap. Committee investigators said they chose to track the 10 selected brand-name drugs because those drugs were top sellers in 2004 and because all but one had no generic alternatives. They add that cost increases among brand-name drugs are so high that they will not be made up by generic savings.

Response
Drug manufacturers and health insurers have contested the data, saying that the committee is highlighting certain brand-name drugs to exaggerate cost increases. They contend that generic drugs have lowered overall costs and that competition has restrained premium increases. Karen Ignagni, president of America's Health Insurance Plans, said, "You have to look at the broader trends. And the news has been nothing but positive, exceeding all expectations."

Ken Johnson, senior vice president of the Pharmaceutical Research and Manufacturers of America, said, "The bottom line is that the Medicare prescription drug program is saving money for seniors and disabled persons, as well as for taxpayers."

Marilyn Moon, director of the health program at the American Institutes for Research and a former trustee for Medicare and Social Security, said, "When you introduce a new program, with all of the fanfare, everyone is anxious to get the best prices, the best look and demonstrate the private sector can handle it. But over time, when you've gotten your customers lined up, prices tend to slip upward." Robert Reischauer, president of the Urban Institute, said, "It's far too soon to make a definitive judgment" based on the new report, but it might be enough to "raise some red flags."

Implications
The prescription drug program's costs to date have remained well below initial projections, the Post reports. However, according to committee investigators, in its first year, the program's greatest cost savings stemmed from lower-than-expected enrollments -- particularly among low-income seniors -- and from insurers pushing seniors to take generic alternatives. Because so many beneficiaries enrolled in the program have been switched to generics and those cost savings now have been realized, continuing cost containment will rely on holding down prescription drug prices.

Investigators say that goal might be difficult to achieve, according to the Post. Committee Chair Henry Waxman (D-Calif.) will hold hearings on drug price increases under Medicare and likely will reintroduce legislation that would grant the federal government the authority to negotiate drug prices for Medicare, the Post reports (Weisman, Washington Post, 5/13).

"Reprinted with permission from kaisernetwork. You can view the entire Kaiser Daily Health Policy Report, search the archives, or sign up for email delivery at kaisernetwork/dailyreports/healthpolicy. The Kaiser Daily Health Policy Report is published for kaisernetwork, a free service of The Henry J. Kaiser Family Foundation . © 2005 Advisory Board Company and Kaiser Family Foundation. All rights reserved.