Reports Describe Spending Trends and Competition in Medicare Part D

The Kaiser Family Foundation (KFF) released two reports this month that discuss the role of competition in Medicare spending under the Medicare prescription drug benefit (Part D), as well as proposals to address areas of limited competition, which could yield federal savings in the Medicare program.

According to one report, “Medicare Part D Spending Trends: Understanding Key Drivers and the Role of Competition,” net spending in Medicare Part D has been about 30 percent lower than initial projections, which were made when the program was first enacted into law. While many argue that the lower-than-expected spending is a direct result of competition among many Part D plans, the KFF report, “Prescription Drug Procurement and the Federal Budget,” finds that in a couple of key areas of the Medicare prescription drug market, competition is actually quite limited. For instance, because Medicare Part D is unable to efficiently purchase drugs for low-income beneficiaries, the program is not getting the best deal on prescription medications. Rebates from drug companies are generally lower under Part D than they are under Medicaid, resulting in higher drug costs throughout the Medicare program. One KFF report suggests that by applying Medicaid rebates, rather than those prices negotiated by Part D plans, to drugs purchased by low-income beneficiaries, the federal government could save over $100 billion over 10 years without shifting costs onto people with Medicare.

According to both reports, lower Medicare Part D spending is more likely attributed to a number of factors other than competition, including increased utilization of generic drugs. This trend may be influenced in part by private plan benefit designs, such as tiered copayments, that restrict beneficiaries’ access to brand-name medications.