Letter Supporting Donut Hole Provisions and Improvement of the Medicare Part D Program

September 11, 2018

Dear Leader McConnell, Leader Schumer, Speaker Ryan, and Leader Pelosi:

On behalf of the millions of members and supporters of the National Committee to Preserve Social Security and Medicare, I write to express our support for maintaining the Medicare Part D donut hole provisions that were included in the Bipartisan Budget Act (BBA) of 2018. We also ask for your help in taking additional steps to improve the Part D program to lower drug costs for seniors and make sure all stakeholders have the appropriate incentives to reduce costs where possible.

The National Committee strongly supports closing the donut hole one year earlier. We also support requiring higher manufacturer discounts on brand name prescription drugs for beneficiaries who are in the coverage gap. The manufacturer discounts are included in the calculation of out-of-pocket costs that determine when a beneficiary crosses the threshold from the coverage gap into catastrophic coverage, where beneficiaries’ costs are much lower. As a result, the BBA will allow beneficiaries to move through the donut hole more quickly and see lower out-of-pocket costs. Reducing the share that Part D plans contribute to prescription drug costs should also lower premiums for beneficiaries and government outlays for the near term.

However, we realize that lowering plan contributions could also exacerbate for plans perverse incentives that MedPAC has already identified. According to MedPAC’s 2016 report, Medicare and the Health Care Delivery System, generic substitution rates drop substantially for many classes of drugs in the catastrophic coverage, where government reinsurance picks up 80 percent of costs.

This suggests that plans don’t encourage the use of lower cost generics when they don’t have much financial incentive to do so.  As MedPAC’s research indicated, the structure of the program may be playing a role because the plan contribution in the catastrophic phase is only 15 percent.   Manufacturers often offer rebates that can offset this 15 percent contribution, which can act as an inducement to plans to offer higher priced drugs. Reducing health plan liability in the donut hole would only make it easier for brand drug manufacturers to offset a plan’s share of costs with rebates that encourage the promotion of more expensive branded drugs.  Congress should rationalize the structure of the program and make plans responsible for encouraging the use of cost effective therapies when they are available.

Finally, we also are concerned that raising the manufacturer liability in the donut hole may lead drug manufacturers to inflate the cost of their drugs to compensate. The provisions in the Bipartisan Budget Act will insulate consumers from high drug costs. But to meaningfully reduce the burden of high drug costs, Congress should allow the Medicare program to negotiate the price of drugs and pursue other policies that will lower the underlying cost of drugs such as patent and marketing monopoly reforms.

Rising drug costs is a pressing issue for our members. We urge you to keep the donut hole provisions included in the Bipartisan Budget Act as is and look forward to working with you on ways to reform Part D further to lower costs for seniors and preserve the sustainability of the Medicare program.

Sincerely,

Max Richtman
President/CEO