The National Committee to Preserve Social Security and Medicare has endorsed the Medicare Drug Savings Act (S. 1083, H.R. 2005), introduced by Senator Bill Nelson (FL) and Representative Kathy Castor (FL). This legislation would require drug manufacturers to pay rebates for the drugs used by individuals who are dually eligible for both Medicare and Medicaid and for people receiving the Medicare Part D Low-Income Subsidy (LIS). 

Drug manufacturers provided rebates for the dual eligible population prior to the enactment of the Medicare Modernization Act of 2003, which established the Medicare Part D drug benefit. The Congressional Budget Office (CBO) estimates that this bill would save $141 billion over 10 years. 

Specific provisions included in the Medicare Drug Savings Act are:

  • Participation. Drug manufacturers would enter into rebate agreements with Medicare, beginning December 31, 2015. They would be required to participate in the rebate program in order for their drugs to be covered by Part D.
  • Rebate Determination. Drug manufacturers would pay the difference between the lowest current rebate they are paying to private Part D drug plans, and the percentage of Average Manufacturer Price (AMP) that they are currently paying under Medicaid. They would pay an additional rebate if prices rise faster than inflation. These rebates would not be used to calculate the Medicaid best price or Average Manufacturer Price.
  • Reporting. Drug manufacturers would have to adhere to reporting requirements for the determination and payment of their rebates. There would be penalties for non-compliance.

Deposits. Drug manufacturers’ rebates would be deposited into the Medicare Part D prescription drug account. Opponents of Medicare drug rebates for low-income beneficiaries argue that drug manufacturers would lower their profits, resulting in reduced research and development and increased drug costs for seniors in Part D. However, studies show that this is not the case. For example, drug companies spent 19 times more on promotion and marketing of new drugs than on research. Please see the National Committee’s Issue Brief on Medicare Drug Negotiation for further explanation.

National Committee Position

The National Committee supports legislation and proposals that would allow the federal government to negotiate Medicare drug prices and require drug companies to restore discounts for low-income individuals for several reasons, including:

  • Drug rebates create significant savings for the Medicare program, without shifting costs to beneficiaries.
  • Medicare should get the best price for the drugs it purchases for all beneficiaries, especially for those with low incomes.
  • Drug manufacturers were prosperous when they paid rebates for drugs used by Medicare-Medicaid dual eligibles before passage of the Medicare Modernization Act of 2003, so restoring the discounts would have a negligible effect on overall drug pricing.
  • National polls show that most Americans, across party lines, support allowing the federal government to negotiate with drug companies as a way to bring down the cost of prescription drugs.

At a time when policymakers are seeking ways to lower the federal deficit and overall health care spending, proposals that would reduce Medicare drug costs cannot be overlooked. Allowing the federal government to negotiate for lower Medicare drug prices and restoring discounts for low-income beneficiaries make sense because they save money without shifting costs to beneficiaries and have broad public support.

 Government Relations and Policy, August 2016