Some bad ideas never seem to go away.
Earlier this year, the Centers for Medicare and Medicaid Services (CMS) proposed a number of significant changes to the Medicare prescription drug program, commonly known as Part D. These proposals included reducing the number of “protected” drug classes (these are drug classes in which all plans are required to cover the vast majority of available treatments), limiting the number of plans that issuers could offer in a region, and imposing “any willing provider” regulation on Part D preferred pharmacy networks. (Some Part D plans use networks of pharmacies, much like an insurer uses networks of physicians, where they will pay for drugs — outside of the network, coverage is either non-existent or very limited. In exchange for limited choice of pharmacies, beneficiaries receive lower premiums. Pharmacies also agree to accept lower prices in exchange for volume.)
As we explained back in February, these regulations were a toxic prescription for Part D:
“The regulations replace market-based competition with government interventions that will drive up costs, erode incentives for innovation among Part D plan providers, and possibly result in worse health for seniors.”
Since then, CMS has backed off on these regulations, but is expected to push for them again next year.
Nevertheless, one of the worst elements of the initial proposed regulations — the any willing provider requirement — has made it into a House bill (H.R. 4577) that is now in committee. The bill would require, as CMS regulatory proposal would have done, preferred networks in Part D to accept any pharmacies that meet cost guidelines. The justification for such proposals? Some vague notions of “consumer protection” by ensuring access to community pharmacies, because of concerns that some preferred networks have higher prices than non-preferred. This would erode plan’s ability to negotiate discounts with pharmacies, with the higher costs passed along to members. This is hardly pro-consumer.
An earlier analysis conducted by CMS found that preferred networks (including mail-order pharmacies) on average have drug costs between 3.5 and 24 percent lower than non-preferred. The Federal Trade Commission has also noted, in a letter to CMS:
“Selective contracting with pharmacies and other health care providers can lower prices paid by plans and their beneficiaries; and Any Willing Provider . . . laws tend to raise prices or spending because they impair the ability of Part D plan providers to engage in selective contracting.”
Need more evidence that preferred networks should be left alone? For starters, look at plans being offered on the ACA’s exchanges. The vast majority of these plans use some form of narrow networks that reduce provider choice, but offer lower premiums. While there’s been a backlash from consumers against some of these plans, a McKinsey analysis found that narrow networks on the exchanges offer as much as 24 percent premium savings. For many people, the ability to shop based on network size significantly reduces premiums. Part D beneficiaries also have flocked to preferred networks — about 75 percent of beneficiaries chose preferred networks in 2014, but with no apparent “backlash.”
A recent GAO report also underscores why CMS and the House should simply leave Part D alone. The report found that between Part D, the Department of Defense, and Medicaid, Part D had the lowest gross drug costs. These savings weren’t achieved through price controls or other heavy-handed regulations — instead, it’s likely that a combination of formularies and appropriate cost-sharing in the Part D program pushed seniors to use generic drugs much more frequently, compared to more expensive branded drugs (the report implies that generic dispensing rate in Part D is over 77 percent, significantly higher than in DOD or Medicaid).
While preferred networks would not have contributed to these savings (they only took off post 2011), the ability to shop based on networks (rather than just formularies) gives Part D beneficiaries even more ways to balance convenience and coverage for premium reductions. Regulators and legislators would do well to recognize that Part is a very successful market where innovative plans are constantly looking for ways to keep costs down, and quality high. Congress shouldn’t try to fix what isn’t broken.
Paul Howard is a senior fellow and director of the Center for Medical Progress at the Manhattan Institute. Yevgeniy Feyman is a fellow at the Manhattan Institute’s Center for Medical Progress.