Democrats request hearing on Medicare drug rebate program

Top Democrats on the Energy and Commerce Committee on Friday asked for a hearing on Medicare prescription drug rebates after federal investigators said the program could be saving taxpayers millions more.

Republicans' 2003 Medicare Modernization Act bars the federal government from directly negotiating bulk discounts for drugs. The private plans that provide the coverage, however, are supposed to negotiate rebates to lower costs for beneficiaries and the government.

In its first major review of the rebate program, the Inspector General for the Department of Health and Human Services on Friday offered a scathing assessment.

"Because of the size of these rebates, it is vital that rebates be reported accurately and that the Government and beneficiaries receive the full benefit of these rebates," wrote Inspector General Daniel Levinson. "Our review identified several concerns about these rebates."

The report in particular found that 69 percent of plans in 2008 underestimated their rebates in their bids for that plan year.

"When sponsors underestimate rebates in their bids," the report explains, "beneficiary premiums are higher than they otherwise would be and both the Government and beneficiaries overpay for the benefit. Although the Government recoups some of the overpayments, beneficiaries do not."

In a letter to the chairmen of the Energy and Commerce health and oversight subcommittees asking for a hearing, Democrats on the panel estimated the underestimates at $1.9 billion per year. 

"The Inspector General's report released today reveals severe problems with the structure of the Part D program and the behavior of the private insurers that administer the drug benefit," wrote Democratic Reps. Henry Waxman (Calif.), Frank Pallone (N.J.) and Diana DeGette (Col.). "These failures present a severe risk to program integrity, reduce beneficiaries access to important drugs, increase drug costs for seniors, and cause billions of dollars in wasted taxpayer funds."

The report also found that "sponsors also often received rebates when they discouraged the use of competitors' drugs," the report said, which stifles competition and patient choice.

The letter signers also took issue with the size of the rebates the plans did negotiate, calling their efforts "ineffective". 

Private plans reported receiving $6.5 billion in drug manufacturer rebates in 2008, about 10 percent of the program's $63 billion cost that year. Democrats who have called for the federal government to be able to negotiate drug prices point out that rebates in the Medicaid program reduce costs by 26 percent.