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Price Negotiation Would Dramatically Lower the Cost of Prescription Drugs for Medicare Beneficiaries

The National Committee to Preserve Social Security and Medicare has long advocated for a government-administered Part D benefit with negotiated drug prices. However, a provision in the Medicare Modernization Act (MMA), known as the "noninterference" provision, expressly prohibits the Medicare program from directly negotiating lower prescription drug prices with pharmaceutical manufacturers. Today, over 3,000 private plans enter into negotiations with pharmaceutical manufacturers to deliver Medicare Part D benefits. Each plan tries to attract a large enough number of customers so they have more leverage to negotiate lower prices with manufacturers. Establishing Medicare as the collective buyer of prescription drugs - rather than thousands of individual private plans - would better harness the purchasing power of Medicare's 43 million beneficiaries and substantially lower prices.

National Committee Position

The National Committee is committed to finding ways to improve the prescription drug law. One of the most significant improvements we can make is to allow the traditional Medicare program to offer its own government-administered Part D plan with drug prices negotiated directly with pharmaceutical manufacturers.

Medicare beneficiaries deserve the same low prices that veterans and others receive through negotiations between the federal government and drug companies. The Department of Veterans Affairs (VA) achieves significant discounts on generic and brand-name prescription drugs by negotiating directly with pharmaceutical manufacturers on behalf of its five million beneficiaries. One study by Congressional Budget Office (CBO) found that, on average, the VA pays only about 42 percent of the Average Wholesale Price (AWP) - or the suggested list price - for brand-name drugs. 1

While VA beneficiaries enjoy some of the best prices on prescription drugs negotiated by the federal government, other federal departments also receive significant discounts on prescription drugs through price negotiation. For example, CBO found that drug prices negotiated through the Federal Supply Schedule (FSS) are 53% of the AWP. 2FSS prices are available to all government agencies (including the VA, the Department of Defense, the Public Health Service, the Bureau of Prisons, and other federal agencies and institutions) when they purchase prescription drugs.

Seniors pay more for prescription drugs under Medicare Part D than veterans pay for prescription drugs under their federally-negotiated plan. One study by Families USA found that the VA negotiated substantially lower prices for the top 20 drugs used by seniors, compared to private Medicare Part D plans. 3Specifically, they found that the lowest VA price is lower than the lowest Medicare prescription drug plan price for 19 of the top 20 drugs. Based on an analysis of median prices, Families USA also found that the lowest price offered by any Medicare prescription drug plan is at least $260.70, or 48.2%, higher than the lowest price available through the VA. 4

Another study by the minority staff at the House Government Reform Committee found that drug prices under Medicare Part D's private plans exceed federally-negotiated prices, Canadian prices, prices, and Costco prices. 5Their study showed that the average prices offered by the ten leading private Medicare drug plans are 84% higher than federally negotiated prices (Federal Supply Schedule), 61% higher than Canadian prices, 3.5% higher than prices, and 2.9% higher than Costco prices. 6

A Medicare-operated Part D plan with drug prices directly negotiated with pharmaceutical companies will deliver billions of dollars in savings. Research by respected economist Dean Baker shows that the federal government and Medicare beneficiaries would save $600 billion between 2006 and 2013 if Medicare were allowed to directly offer a Part D benefit and to negotiate prices with pharmaceutical manufacturers. 7Such significant savings could be used to close Part D's donut hole and to lower cost-sharing for Medicare beneficiaries.


Medicare beneficiaries should be given the choice to get their prescription drug benefit from the traditional Medicare program that they know and trust. Instead, they are forced to deal with an overwhelming number of private plans with varying formularies, premiums, deductibles, and co-pays in order to receive prescription drug coverage. A Medicare-operated plan with negotiated drug prices will restore the social insurance nature of Medicare, deliver substantially lower prices, and give beneficiaries the Part D choice they really want.

Congress of the United States , Congressional Budget Office, Prices for Brand-Name Drugs Under Selected Federal Programs ( Washington , D.C. : June 2005).


Note: Families USA examined Medicare prescription drug plan prices for the top 20 drugs used by seniors in 2004 for two regions of the country and compared them to the prices negotiated by the federal government through the Department of Veterans Affairs.

Families USA , Falling Short: Medicare Prescription Drug Plans Offer Meager Savings , Special Report ( Washington , D.C. : December 2005).

The report examined prices for a monthly supply of the ten drugs with the highest sales to beneficiaries in 2004 under the ten leading Medicare private Part D plans.

United States House of Representatives, Committee on Government Reform�Minority Staff, Special Investigations Division, New Medicare Drug Plans Fail to Provide Meaningful Drug Price Discounts , Prepared for Rep. Henry A. Waxman ( Washington , D.C. : November 2005).

Note: The study notes that the $600 billion figure represents "gross savings on purchases of prescription drugs by the Medicare population compared with the program put in place by the Medicare Modernization Act; they are not savings to the federal government alone."

Source: Baker, Dean. Center for Economic and Policy Research, The Savings from an Efficient Medicare Prescription Drug Plan ( Washington , D.C. : January 2006).

NCPSSM Policy & Research, April 2006

The National Committee is a nonprofit, nonpartisan organization that acts in the interests of its membership through advocacy, education, services, grassroots efforts and the leadership of the board of directors and professional staff. The work of the National Committee is directed toward developing a secure retirement for all Americans.

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