Drug Price Controls in Medicare Part D: Not a Remedy for More Than 5 Million Medicare Beneficiaries

A recent U.S. Department of Health and Human Services report reiterates an ongoing and serious challenge to our health care system: More than 5 million Medicare beneficiaries struggle to afford their prescriptions. The burden falls disproportionately on Black, Latino, and lower-income beneficiaries, as well as women and people living with chronic conditions.

Improving access for these Medicare populations is the goal of many policy proposals. It is important to evaluate these proposals on whether they can accomplish this goal and ensure that patients are better able to get the medicines their doctors say they need. The most widely known proposals would have the federal government directly “negotiate” prices and impose limits on price increases. While these proposals have some political appeal, the evidence shows that they would do little to ease patients’ cost burdens. Let’s take a closer look.

There is confusion over prices vs. out-of-pocket costs. The price a patient pays for prescriptions at the pharmacy counter is typically an out-of-pocket cost or copayment, usually set by their insurer as part of the design of their health plan. This insurer-dictated amount has little correlation with the drug’s list price. Drug manufacturers provide steep rebates and discounts from the list prices to insurance companies to ensure that those medicines can be covered by insurance plans. In addition, drug companies also offer, when the law allows, direct assistance to patients having trouble affording medicines. Federal drug price controls might impact some manufacturer list prices, but the proposal would fail to address challenges that patients have at the point of purchase.

The “savings” from drug price controls are unlikely to result in significant reductions in copays or coinsurance amounts. NPC research shows that savings from drug price controls are unlikely to reach patients at the pharmacy counter. Instead, the savings will likely flow to middlemen or insurers, meaning the only way patients could see any savings would be if insurers subsequently reduced premiums. While that change could be welcome news for some, the premium reduction would do nothing to fix the flawed benefit design that imposes a large financial burden on patients who need prescription drugs.

Price regulation will reduce incentives to invest in biopharmaceutical research and decrease the number of future new therapies available to patients. There is robust evidence demonstrating the relationship between changes in drug manufacturers' expected returns and the resulting innovations that benefit patients. Studies have found that reductions in potential market size or expected economic returns negatively affect measures of innovation, both in the number of clinical trials conducted and new drugs approved. With price controls, fewer therapies will be developed, meaning some patients will not have access to treatments and cures that could have improved or extended their lives. Evaluating any policy proposal thoroughly requires examining the potential tradeoffs, especially if current and future patients will be asked to bear the brunt of those tradeoffs.

Given the warnings, what should policymakers be considering to help Medicare beneficiaries? Some options include:

• Reducing Medicare Part D cost-sharing and capping out-of-pocket costs for patients. The lack of a limit on out-of-pocket spending exposes patients with Part D benefits to thousands of dollars in additional costs if they take high-price medications. A cap on out-of-pocket costs and reduced cost-sharing will bring relief to millions of patients on Medicare Part D that bear an undue burden of costs to access their needed medications.
• Updating how our health care benefits are designed. We can improve patient access and control costs by implementing evidence-based, patient-centered solutions that bring high-value care to prescription drug benefits. These patient-centered solutions include implementing best practices for step therapy, reducing patient cost-sharing when clinically appropriate, and providing pre-deductible coverage for high-value medicines.
• Not harming the innovation ecosystem that delivers new treatments and cures. The United States leads the world in developing new and curative therapies, and we must preserve our system’s incentive structure that supports robust research and development. Innovation is the spark of discoveries that, once approved as safe and effective, have transformed the lives of patients with chronic, even life-threatening diseases.

Programs like Medicare, and insurance more broadly, are built to help patients gain access to care in financially feasible ways. Increasingly, patients are being asked to shoulder a greater financial burden, endangering access and their overall health. The reforms that would make the most positive impact are those that would reduce the cost impact on patients while encouraging the innovations that offer the promise of even more effective care in the future.