Constituent Services
Higgins Says Failure to Negotiate Drug Prices Costing U.S. Seniors and Taxpayers Billions Each Year
October 15, 2007

Oversight Committee Report Shows Drug Manufacturers Are Profiting Off Failed Medicare Part D Program


Today, Congressman Brian Higgins (NY-27) and colleagues on the House of Representatives Committee on Oversight and Government Reform released a new report on the Medicare Part D drug program, revealing that the high administrative costs of the private Part D insurers, combined with their inability to negotiate significant drug savings, will cost taxpayers and seniors almost $15 billion this year.


“The failure of the Administration to use the collective purchasing power of 24 million Medicare Part D recipients to negotiate with prescription drug companies the best possible price for seniors already stretched financially is completely unconscionable,” said Congressman Brian Higgins.  


The investigation by the staff of the House Oversight Committee is the first independent analysis to have access to proprietary data about drug plan costs and drug prices.  Key findings include:


  • High administrative expenses.  The private Part D insurers report administrative expenses, sales costs, and profits of almost $5 billion in 2007 -- including $1 billion in profits alone.  The administrative costs of the privatized Part D program are almost six times higher than the administrative costs of the traditional Medicare program.


  • Small drug rebates.  The drug price rebates negotiated by the Part D insurers reduce Medicare drug spending by just 8.1%.  In contrast, rebates in the Medicaid program reduce drug spending by 26%, over three times as much.  Because of the difference in the size of the rebates, the transfer of low-income seniors from Medicaid drug coverage to Medicare drug coverage will result in a $2.8 billion windfall for drug manufacturers in 2007.  The Part D insurers receive no rebates or other manufacturer discounts for three-quarters of the drugs used by seniors. 


  • Failure to pass through rebates to seniors.   When the insurers do obtain drug price rebates, they do not use the rebates to reduce pharmacy drug prices.  This year alone, the private insurers will receive $1 billion in rebates on purchases that seniors in coverage gaps, such as the donut hole, pay for out of their own pockets. 


A study conducted by Families USA, a nonprofit advocacy group, recently found that those on Medicare were being charged at least 58 percent more for half of the 20 most prescribed medicines last year than prices paid by the Federal Department of Veterans Affairs (VA).  The VA and the Department of Defense (DOD) already operate under a system which allows for negotiated drug costs.


Unlike the VA and DOD, rather than negotiate drug prices Medicare reimburses physicians for drugs covered under Part B.  The maximum Medicare reimbursement for covered Part B drugs is calculated by taking the average sales price and adding six percent. 


In January Congressman Higgins cosponsored and the House of Representatives approved H.R. 4, legislation requiring the Department of Health and Human Services (HHS) to negotiate for lower prescription drug prices for Medicare beneficiaries.  This legislation is still under consideration in the Senate. 


“The numbers in this report speak volumes,” said Higgins.  “The current system certainly isn’t serving the best interests of Part D patients.  It’s time to end the practice of padding the profits of pharmaceutical companies at the expense of American seniors.”  


For a complete copy of the Government Reform Committee’s report click here. 








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