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Generic drugs, low enrollment dampened Medicare Part D spending: CBO


By Bob Herman
Posted: July 30, 2014 - 7:15 pm ET
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The cost of Medicare Part D, the federal prescription drug program, has been far lower than originally predicted, new data from the Congressional Budget Office show. A massive slowdown in drug spending growth and low participation in the program have played the biggest roles.

When Part D was created in 2003, the CBO expected total federal spending on the program would be $99 billion by fiscal 2013. However, actual spending in 2013 was almost half that, equaling $50 billion. This was due, in part, to the anemic 2% annual growth rate in per capita drug spending, according to the report.

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The CBO attributed the slowdown to two primary trends: the rise of generic drugs stemming from patent expirations and fewer new brand-name drugs going to market.

Several brand-name drugs have had their patents expire during the past decade, allowing generic pharmaceutical companies to come in and create cheaper alternatives to the previously protected products. For example, cholesterol drug Lipitor lost its exclusivity in 2011, and that development has adversely affected the earnings and growth of its maker, Pfizer. Eli Lilly and Co. has faced similar revenue declines after patents expired for antidepressant Cymbalta and osteoporosis drug Evista in the past several months.

To counter this trend, some drugmakers have expanded the use of high-priced specialty orphan drugs to treat more common ailments.

The CBO said from 2007 to 2010, the use of generic drugs as a share of all drugs increased from 67% to 78%, which similarly led to large savings within Part D.

“The increased use of generic drugs has generated substantial savings in Part D,” the report stated. “CBO estimated that the use of generic drugs instead of their brand-name counterparts saved $33 billion in 2007, reducing total spending on prescription drugs within the program from $93 billion (if no generic drugs had been available) to $60 billion.”

To a lesser degree, constrained spending in Part D was also due to low enrollment. In 2012, about 73% of all Medicare beneficiaries were enrolled in Part D, compared with the 87% the CBO estimated a decade ago. This compared with 92% of Medicare patients enrolled in Part B. The CBO attributed the low participation to a lack of automatic enrollment and the complexity of drug plans for beneficiaries.

The report was requested by the chairman of the Senate Finance Committee's Health Care Subcommittee, Sen. Jay Rockefeller (D-W.Va.). Rockefeller has pushed legislation giving HHS the authority to exert some control over drug prices by requiring rebates for drugs prescribed to beneficiaries enrolled in both Medicare and Medicaid.

Sen. Orrin Hatch (R-Utah), ranking member of the Senate Finance Committee, hailed the report, saying it shows that private competition was “key” to the success of Part D. The CBO analysts found that drug plans in regions with more plan sponsors usually offered lower premiums to Medicare patients.

“Unfortunately, CBO could have done more in this report to fully examine the impact of Washington-mandated price controls on this successful program,” Hatch said in a statement.

Follow Bob Herman on Twitter: @MHbherman


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