Does The Medicare Drug Discount Program Drive up Prices?

The Patient Protection and Affordable Care Act established the Discount Program to help Medicare Part D beneficiaries with their prescription drug costs while in the coverage gap. Until the Discount Program began in 2011, beneficiaries in the coverage gap paid 100% of drug costs. The Discount Program required manufacturers to provide a 50% discount on the price of brand-name drugs for beneficiaries in the gap.

The General Accountability Office (GAO) interviewed pharmacy benefit managers (PBMs) to get their take on the effects of the program. Most sponsors and PBMs told GAO that the Discount Program may be contributing to rising prices of some brand-name drugs by some manufacturers. However, most manufacturers say they don’t think that the Discount Program affected the drug prices that they had negotiated with sponsors and PBMs.

The PBMs said that some manufacturers decreased rebates for their brand-name drugs because of the Discount Program. In comparison, most of the plan sponsors did not observe manufacturers decreasing rebate amounts and most manufacturers said the Discount Program had no effects on their rebate negotiations. Most sponsors and PBMs told GAO that the Discount Program did not affect Part D plan formularies, plan benefit designs, or utilization management practices.

Prices for high-expenditure brand-name drugs increased at a similar rate before and after the Discount Program was implemented in January 2011. Specifically, from January 2007 to December 2010, before the Discount Program began, the median price for the basket of 77 brand-name drugs (weighted by the utilization of each drug) used by beneficiaries in the coverage gap increased 36.2%. During the same period, the median price for the basket of 78 brand-name drugs used by beneficiaries who did not reach the coverage gap increased 35.2%. From December 2010 through December 2011, the first year with the Discount Program, the median price for the two baskets increased equally by about 13%, the greatest increase in median price for both baskets compared to earlier individual years.

For more information, contact http://www.gao.gov/products/GAO-12-914

Last Updated 10/4/2017

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