Oppose Rep. Carter's DIR Letter

September 25, 2017

House of Representatives
Washington, D.C.  20515

Dear Member,

It is our understanding that Rep. Earl “Buddy” Carter (R-Ga.) is requesting signatures for a letter that will be sent to Health and Human Services Secretary (HHS) Tom Price.  The letter asks Sec. Price to “ensure that Medicare Part D sponsors dedicate a meaningful share of negotiated rebates, discounts, and other fees to reduce Part D patients’ out of pocket costs for covered medicines at the point-of-sale,” and expresses concern that “discounts and rebates that reduce ingredient and dispensing costs for Part D plan sponsors (known as direct and indirect remuneration or DIR) have nearly tripled since 2010.”  On behalf of the more than 1.2 million members and supporters of the Council for Citizens Against Government Waste (CCAGW), I ask that you do not sign this letter.

CCAGW believes market forces are the best way to reduce medical costs to consumers and taxpayers.  Asking the HHS Secretary to “dedicate a meaningful share” of negotiated discounts and refunds among pharmaceutical manufacturers, pharmacy benefit managers (PBMs), and pharmacists constitutes government price controls.  HHS bureaucrats would determine the cost and size of a “meaningful share.”  The letter’s conclusion proves that would occur:  “We look forward to working with the administration on behalf of Medicare Part D patients and pharmacists.”  “Meaningful share” will be about pharmacies getting a government-guaranteed income rather than lowering drug costs for taxpayers and patients.

Part D sponsors and PBMs utilize DIR, including discounts, rebates, and performance measures, to encourage pharmacies to dispense generic drugs, diminish improper drug use, improve medication adherence, and enhance value.  This process helps to lower costs for patients and taxpayers.  A Centers for Medicare and Medicaid January 9, 2017 report noted that, “Despite the growth in total gross drug costs, the relatively faster growth in DIR has resulted in a steady decline in final plan liability” and that, “Payment arrangements that result in post point-of-sale concessions lessen plan liability and put downward pressure on beneficiary premiums.  This pressure is one reason that premiums remained relatively unchanged between 2010 and 2015, despite the fact that total gross drug costs grew about 12 percent per year in that span.”

The private negotiations and free-market incentives that have occurred among pharmaceutical companies, Part D sponsors or PBMs, and pharmacies, have helped to keep the cost of Medicare Part D far below than what was predicted when it was first implemented.  In 2005, the Congressional Budget Office (CBO) estimated Medicare Part D would cost taxpayers $172 billion in 2015; the cost was $75 billion.

Medicare Part D has kept costs down and delivered service effectively precisely because the government cannot interfere in private, robust negotiations among providers.  It is the reason why beneficiaries have consistently given Medicare Part D high ratings for value, convenience, and choice.

Taxpayers and patients do not need government interference in drug pricing; continuing the current private sector-negotiated pricing system is the only way to retain lower drug costs.  Again, I ask that you do not sign Rep. Carter’s letter.


Tom Schatz
President, CCAGW


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