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Medicare Drug Spending

By July 22, 2016Commentary

Medicare covers the elderly and those on social security disability and for the last ten years has included a drug option, Part D.  Part B, or outpatient physician and other clinician services, also covers some drugs, primarily those administered in a physician office.  A report from the Kaiser Family Foundation gives some interesting statistics on Medicare’s drug spending.    (KFF Report)   About 16% of Medicare spending, 0r $97 billion, is on prescription drugs and Medicare accounted for 29% of all US medication spending in 2014.  Both proportions are expected to grow over the next ten years.  On a per capita basis, Part D is expected to average 6% growth over the next decade and 9% total growth.  “Breakthrough” drugs, like the ones to treat hepatitis C, are responsible for much of this increase in spending.  Drug spending is projected to grow much faster than other service categories, so if we are to control Medicare spending, and that of beneficiaries, we will have to limit that growth.  For beneficiaries, drugs accounted for almost 20% of their out-of-pocket health costs.  And if drug costs keep rising, deductibles and out-of-pocket spending for beneficiaries will rise significantly.  It also increases the likelihood that patients hit the 5% coinsurance level.

There is no question in my mind that Medicare should use its purchasing power, and combine it with Medicaid’s, to do everything possible to force drug prices down.  Formularies should be limited and competition required to get a place on the formulary.  Rebates should be mandated and should be based on the overall profitability of drug.  Part B specialty drugs require particular attention, as they will grow very rapidly in coming years.  As strong a free market proponent as I am, drug company pricing often amounts to abuse of the patent laws that give them monopolies, and government should do what it can as a purchaser to strike back against this abusive pricing.  Medicare should be ground zero for those efforts.

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