Rising Medicare Cost Estimate Leads to Calls for Direct Price Negotiations

While drugmakers stand to gain financially under new cost estimates for the Medicare Rx drug benefit, the plan's significantly higher price tag also gives new ammunition to lawmakers who want the HHS to negotiate drug prices.

Revelations that the drug benefit could cost $720 billion to $1.2 trillion over a 10-year period already have prompted legislative proposals for direct negotiations, including from Rep. Pete Stark (D-Calif.), ranking member of the House Ways and Means Health Subcommittee. When the bill passed in November 2003, the benefit was expected to cost $400 billion over a decade, he noted.

It's no surprise that the drug benefit costs more than projected, said Stark. "The Republicans wrote a bill that gives billions to the pharmaceutical industry and insurance companies, sticking beneficiaries and taxpayers with the bill," he said.

According to Medicare actuaries, the benefit would cost approximately $1.2 trillion between 2006 and 2015 in gross terms. But Centers for Medicare & Medicaid Services Administrator Mark McClellan said the costs over the 10-year period would actually be in the $720 billion range, with savings coming from beneficiary premiums and the transfer of drug coverage from patients on Medicaid. Others, however, have said McClellan's estimate is low, including a Democratic congressional aide, who said the plan would cost roughly $913 billion over 10 years.

While Democrats decried the new cost estimates, an aide on the Ways and Means Health Subcommittee said the higher price tag might give lawmakers an opening "to make the case to require price negotiation and other efforts to aggressively lower drug prices." The Medicare benefit includes a provision that prohibits direct government negotiations on drug prices.

Whether that argument gains traction will depend on Republican support, said a drug industry observer.