Coalition Opposes Inflationary Rebate Penalty in Medicare Part D

July 22,2019

DearMembers of the Senate Finance Committee: 

We write inopposition to creating an inflationary rebate penalty in Medicare Part D.

Under thisproposal, a monetary penalty would be imposed on a manufacturer if the priceincrease of a medicine is greater than inflation.

We areconcerned that this proposal institutes a new price control on Part D that willdo nothing to directly help seniors and will instead create distortions thatwill undermine the free market and the success of Medicare Part D.

Part Dworks because it facilitates negotiation between different stakeholders. The system puts downward pressure on costs through competitionbetween pharmacy benefit managers (PBMs), pharmaceutical manufacturers, plans,and pharmacies. At the core of this program is the non-interference clausewhich prevents the Secretary of Health and Human Services (HHS) frominterfering with the robust private-sector negotiations. The CongressionalBudget Office has even said that there would be a “negligible effect” onMedicare drug spending from ending non-interference.

Aninflationary rebate penalty will undermine this by instituting a price fixingmechanism. Conservatives have long opposedpricecontrols because they utilize government power to forcefully lower costs in away that distorts the economically-efficient behavior and natural incentivescreated by the free market. When imposed on medicines, price controls suppressinnovation and can severely limit access to new medicine. Over the long term,price controls deter the development and supply of new life saving and lifeimproving medicines to the detriment of consumers, patients, and doctors.

ExistingPart D negotiation already protects against price increases. Almost100 percent of medicines are subject to “price protection rebates” negotiatedby PBMs which effectively establishes a private sector ceiling or cap on theamount by which the price of a medication can increase.

Aninflationary rebate penalty would do nothing to directly help seniors asthere would beno tangiblebenefit in terms of bringing their own costs down. The federal government isthe only direct beneficiary of these financial penalties. The revenue generatedfrom this penalty would likely be used for other spending purposes rather thanoffsetting individuals’ drug costs. Undermining Part D with an inflationaryrebate may also crowd out existing rebates and discounts which flow through topatients.

The factis, the market-based structure of Part D is popular and successful. Since it was first created, federal spending has comein 45 percent below projections – the CBO estimated in 2005 that Part D would cost $172 billionin 2015, but it has cost less than half that – just $75 billion. Monthlypremiums are also just half the originally projected amount, while 9 in 10seniors are satisfied with the Part D drug coverage.

As youcontinue your efforts to lower healthcare costs, we urge you to reject anyproposal that institutes an inflationary rebate penalty in Medicare Part D. Anew price control will undermine the successful system that has served seniorswell.


President, Americans for Tax Reform 

James L.Martin
Founder/Chairman, 60 Plus Association

Saulius“Saul” Anuzis
President, 60 Plus Association

Lisa B.Nelson
CEO, ALEC Action

Steve Pociask
President / CEO, American Consumer Institute

Dee Stewart
President, Americans for a Balanced Budget

Jeffrey Mazzella
President, Center for Individual Freedom

Ginevra Joyce-Myers
Executive Director, Center for Innovation and Free Enterprise

Executive Director, Conservatives for Property Rights

President, Consumer Action for a Strong Economy

President, Council for Affordable Healthcare Coverage

Thomas Schatz
President, Council for Citizens Against Government Waste

NaomiLopez Bauman

Directorof Healthcare Policy, Goldwater Institute 

President, Market Institute

Pete Sepp
President, National Taxpayers Union

Karen Kerrigan
President & CEO, Small Business & Entrepreneurship Council

Tim Andrews
Executive Director, Taxpayers Protection Pledge

Sara Croom
Executive Director, Trade Alliance to Promote Prosperity

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