CBO: Health reform lowers drug prices for some, raises them for others

The health reform law's new discounts and rebates for prescription drugs in Medicare and Medicaid will have varying but limited effects on beneficiaries' pocketbooks, Congress's budget scorekeeper said Thursday. Older Americans who reach the infamous Medicare "doughnut hole," however, should benefit substantially.

The new law "requires manufacturers of brand-name drugs to provide new discounts and rebates for drugs purchased through Medicare and Medicaid, with the amount of those discounts and rebates based on the prices of the drugs," the Congressional Budget Office explains in a letter to House Budget Ranking Member Paul Ryan (R-Wis.), who requested the information. "Manufacturers thus have an incentive to raise those prices to offset the costs of providing the new discounts and rebates, although other forces will limit their ability to do so."

CBO estimates Medicare provisions will raise drug prices by about 1 percent, making "federal costs for Medicare’s drug benefit and the costs faced by some beneficiaries slightly higher." The 50 percent rebate in the Medicare "doughnut hole," meanwhile, should be so substantial that most seniors who reach that level should pay less overall for their drugs, even after factoring in the higher prices they'll pay for the portion of drugs consumed before reaching the doughnut hole. 

Medicaid, meanwhile, should pay less for drugs because of new rebates in that program.