Statement of The Honorable Henry Waxman, a Representative in Congress from the State of California

Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means

May 04, 2006

Thank you for asking me to testify today.

I don’t need to tell anyone on this Committee about the problems with the new drug benefit.  You’ve all been back to your districts, and heard the complaints from seniors who can’t get the drugs they need, or can’t even cut through the plan’s complications — the dozens of different plans, each with different copays, premiums, deductibles, and formularies — to even sign themselves up.  Now, as the May 15 deadline for enrollment looms, millions of seniors face life-long penalties for not signing up for this flawed program in time.

The Medicare bill is increasingly looking like a poor deal for too many seniors:  the new program is incredibly complicated; too many of our most vulnerable seniors are falling through the cracks; and it is costing seniors and the taxpayers far too much.

One of the justifications for the plan’s confusing scheme involving dozens of private insurers is that these plans would be able to provide seniors with lower prices.  But this is simply not the case.  The prices that the plans are charging seniors are way too high.  They are well above prices that aggressive government negotiators like the VA pay; they are well above prices that consumers pay in Canada; and they are even higher than the prices available through large retailers.

I’d like to give you a few examples of the kinds of price differences that we are seeing.  Recently, my staff looked at the prices offered by ten leading Medicare insurance plans for ten popular brand name drugs.  The average Medicare prices were more than 75% higher than prices negotiated for the federal government by VA; they were almost 60% higher than prices in Canada.  And they were higher than the prices at Drugstore.com or Costco.

With the new Medicare plans, beneficiaries pay an average price of $111 for the ulcer drug Protonix.  But the federal government pays only $24 for the same drug — a 425% difference.  Similarly, Medicare beneficiaries pay an average price of $129 for the heartburn medication Nexium.  But consumers in Canada pay only $67.

The prices offered by the Medicare drug plans didn’t just start out high.  They also went up — and they did so rapidly.  CMS began posting information on the prices offered by the Medicare drug plans in November 2005, and seniors began choosing plans and signing up in December.  At this point, many were locked into a plan. 

But in February, my staff looked at whether plans were increasing their posted drug prices for beneficiaries.  They found that in the first two months of the Medicare program, the drug plans increased their prices by over 4%.  The vast majority of plans increased their prices, with some plans increasing prices by over 10%. 

These price increases in the first two months of the program were greater than the inflation rate for all of 2005.  They were over twice as high as drug price increases in Canada.  And, contrary to critics of the analysis, they increased even faster than the published average wholesale price for the same drugs.

These massive price differences, and the rapid price increases, make little sense.  For beneficiaries, they increase out-of-pocket drug costs, reduce purchasing power, and undercut the assistance provided by the Medicare drug benefit.  For taxpayers, who will also end up footing the bill for higher drug prices, they will ultimately mean billions of dollars in extra costs.

There are other problems with the Medicare drug benefit as well.  One of the biggest complaints that we’ve heard from seniors is that they are not able to get the drugs they need, and that they are encountering hidden restrictions on drugs that are listed on a plan formulary.  

The problem is that plans are using additional tactics to restrict use — they require prior authorization before a drug can be prescribed, or limit the quantity of a given drug that they will pay for, or require that beneficiaries use a different drug first.  The use of these restrictive tactics means that even if seniors have carefully researched a Medicare drug plan, they can still encounter obstacles in obtaining medications. And while the use of restrictive tactics by Medicare drug plans is widespread, the disclosure of their terms is virtually nonexistent.

Over two-thirds of the Medicare drug plans contacted in a phone survey by my staff were unable to describe accurately how the prior approval, step therapy, or volume limits worked with their particular plan.  In a number of cases, plan representatives had no idea what these terms even meant.  In a number of other cases, Medicare drug plans provided erroneous or conflicting information about restrictions.  Several times, plans were called twice consecutively and gave completely different answers to identical questions about whether plans restricted access to drugs and how these restrictions worked.

The net result of all this is that even if they carefully research a plan, too many Medicare beneficiaries can’t get the medicine they need.  Beneficiaries with high blood pressure are not able to obtain their medication in their prescribed dose.  Arthritis patients have been denied the recommended doses of painkillers that they need.  Mental health patients are unable to get appropriate doses of antipsychotic medications.  These stories are heartbreaking, and they show how far short this program falls from what it should have been — a simple and dependable part of Medicare.

The complexity of Medicare Part D is putting many seniors in a “Catch 22” predicament.  Seniors are not able to make a fully informed choice about a Medicare drug plan without knowing whether the plan will limit their access to drugs listed on the plan formulary.  But even though the use of these restrictive tactics is common, it is nearly impossible for seniors to learn their terms until after they have subscribed and been denied drug access. 

Again and again, when we talk to seniors and investigate the facts, we come across a common theme.  The Medicare prescription drug plan is not working for seniors.  It’s too complex, leaving many seniors unable to sign up or unable to get the drugs they need when they do sign up for a plan.  And the plans just are not able to control prices and give seniors the low costs that they were promised.

We need to take another look at this Medicare plan.  Clearly, given the complexity and confusion surrounding the program, we should extend the May 15 deadline.  Seniors should not be penalized because Congress passed the legislation that created this flawed drug benefit.  And we should do all that we can — including letting the government negotiate for better prices — to guarantee that seniors and taxpayers get their money’s worth.