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Letter to the Senate Finance Committee

Reed and Whitehouse Seek to Rein in Health Care Spending and Lower Costs of Medicare Prescription Drugs

In an effort to responsibly off-set the cost of health care reform and rein in skyrocketing health care costs, U.S. Senators Jack Reed (D-RI) and Sheldon Whitehouse (D-RI) today joined with 19 of their Senate colleagues in sending a letter to the Senate Finance Committee urging the panel to reform the Medicare Part D prescription drug program as a part of health reform to make it more affordable for seniors and the government.

"The success of the health care reform effort hinges on whether we can find ways over the long-term to pay less for health care without compromising the goal of high-quality care for every American. This is an enormous challenge, but the fact that Americans pay more than twice as much as other industrialized countries for worse health outcomes indicates that there are tremendous inefficiencies embedded in the system. If we are to succeed in health reform, we cannot allow those inefficiencies to remain," the senators wrote.

The Part D program allows Medicare beneficiaries to buy prescription drug coverage from private insurance companies. It has been criticized because the coverage is limited, and includes a gap, sometimes referred to as the "doughnut hole" in which seniors who have exceeded a certain level of benefits continue paying premiums but receive no help on drug costs, and drug prices in Medicare are far higher than in other programs such as the Veterans' Health Administration.

The letter to Finance Committee Chairman Max Baucus and Ranking Member Chuck Grassley comes as the Committee is considering legislation to reform health care. It lays out several options that could generate savings from Part D, including:

· Allowing Medicare to negotiate Part D prices, as is currently done by the Department of Veterans Affairs;
· Creating a Medicare administered Part D plan that could compete against existing private plans; and
· Requiring pharmaceutical companies to pay rebates to Medicare for drugs delivered under Part D if Medicare is not given the authority to negotiate prices directly. For example, reversing a policy that eliminated Medicaid rebates for low-income elderly could result in $63 billion in savings over the next ten years, according to the Congressional Budget Office.
"Substantial savings could be generated through sensible changes to the Part D drug benefit - savings that would benefit both taxpayers and the seniors and people with disabilities who rely on the program," concluded the Senators.

Additional cosigners of the letter include Senators Merkley, Begich, Boxer, Brown, Burris, Casey, Dorgan, Feinstein, Franken, Harkin, Kaufman, Klobuchar, Leahy, Mikulski, Murray, Sanders, Schumer, Shaheen, Stabenow, and Tom Udall.

The text of the letter follows:

Dear Chairman Baucus and Ranking Member Grassley:

The success of the health care reform effort hinges on whether we can find ways over the long-term to pay less for health care without compromising the goal of high-quality care for every American. This is an enormous challenge, but the fact that Americans pay more than twice as much as other industrialized countries for worse health outcomes indicate that there are tremendous inefficiencies embedded in the system. If we are to succeed in health reform, we cannot allow those inefficiencies to remain.

In that spirit, we urge you to consider strategies for further reducing the costs of the Medicare Part D drug benefit. The announcement in June that drug companies will cut their prices to partially fill the doughnut hole is encouraging, but more needs to be done. The price of drugs under Part D is substantially higher than prices obtained by programs where the government is permitted to negotiate for savings, such as the Department of Veterans' Affairs (VA) - an average difference of 58 percent in 2007 for some of the most commonly prescribed drugs. Since the recent deal only pertains to pricing for beneficiaries in the doughnut hole, presumably these pricing differentials will remain equally great, if not greater, for a large portion of Part D purchasing. Reducing drug prices across the entire Part D program would lower health care spending and help Medicare beneficiaries by reducing premiums and their out-of-pocket costs.

There are several policy options that could accomplish this objective, including:

Allow Medicare to negotiate for Part D prescription drug prices by repealing the Medicare Modernization Act's non-interference provision and directing the Secretary of HHS to negotiate directly where savings can be obtained.
Create a Medicare-administered Part D plan that would compete against existing Part D plans. A model with a workable formulary is outlined in S.330, the Medicare Prescription Drug Savings and Choice Act of 2009. Such a plan could also serve as a national default plan for low-income beneficiaries.
In lieu of direct negotiation, require pharmaceutical manufacturers to pay substantial rebates to Medicare for drugs delivered under Part D. At a minimum, Medicaid-level rebates should be required for drugs delivered to beneficiaries dually eligible for Medicare and Medicaid, as drug manufacturers were required to pay rebates for these beneficiaries prior to 2006. Some form of additional rebate should be required for other Part D beneficiaries to reflect the relatively high costs of drugs under Part D.

Substantial savings could be generated through sensible changes to the Part D drug benefit - savings that would benefit both taxpayers and the seniors and people with disabilities who rely on the program. Thank you, in advance, for your examining this opportunity further.
Sincerely,


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