MEDICARE’S NEXT REFORM

With an increasing number of Medicare recipients reaching the “doughnut hole,” the gap in the program’s prescription drug coverage, Congress is busy trying to make this unfortunate policy less painful. The one sure way to do that is to eliminate the hole, a reform that is at once obvious to elected officials and frightening because of its expected cost.

Yet closing the hole doesn’t have to be as expensive as critics say. Currently, the doughnut hole begins once beneficiaries reach $2,250 in drug costs. They must then pay 100 percent of costs, without the bargaining power to negotiate a lower price, until they spend $5,100. Legislation by Sens. Olympia Snowe and Ron Wyden would allow beneficiaries to switch plans as they approached the doughnut hole, a helpful idea over the short term -it would be in effect for a year – though not a long-term answer.

A recent letter from Sens. Susan Collins and Bill Nelson asks for support of legislation that would instruct the secretary of Health and Human Services to negotiate for lower drug prices on behalf of beneficiaries, with the savings applied to expanded coverage across the doughnut hole. Depending on the negotiating intentions of the government, that could result in major savings.

For example, a study by the Center for Hospital Finance and Management at Johns Hopkins concludes “the gap in coverage could be completely eliminated if Medicare paid the same price as the Veteran’s Administration or Department of Defense and 75 percent of the gap could be eliminated if Medicare paid the same prices as the Federal Ceiling Price,” according to a letter by Gerard F. Anderson, the director of the center.

The federal ceiling price is the maximum price manufacturers can charge to the federal government’s major purchasers of prescription drugs.

This study supports what advocates of price negotiation have said since before Medicare had a Part D – that the only way the program will be affordable now and for the large number of Americans who will be retiring in the next two decades is for the government to use its purchasing power to obtain lower prices. As the study highlights, some government agencies already do this (without anyone screaming about price controls, as has happened in the Medicare debate) and that has meant a lot more coverage.

The next reform of Medicare’s prescription drug policies must have two parts. The plans must be simpler for beneficiaries, so they know their illnesses will be covered. And they must be more affordable for taxpayers, so they know the program is sustainable. Price negotiation is the place to begin, and the doughnut hole is the perfect reason to start immediately.