Medicare bureaucrats believe seniors have too much choice! Last month the Centers for Medicare and Medicaid Services (CMS) proposed sweeping changes to the Medicare Part D drug program. Released without fanfare, buried in a 700 page veritable plethora of regulations published in the Federal Register were three significant changes to the Medicare drug program. These proposed regulations include: 1) Any willing pharmacy regulations to prohibit exclusive networks; 2) reducing the number of protected classes of drugs covered in each plan; and 3) reducing the number of drug plans that plan sponsors are allowed to offer in each service region.
Any willing pharmacy regulations prevent plan sponsors from creating exclusive pharmacy networks. The proposed regulations would require drug plans to allow participation by any pharmacy willing to abide by the terms of the “winning” bidder in the network contract. This weakens drug plans’ bargaining power to negotiate the lowest prices from pharmacies competing to be included in a network.
I’d do anything
Over at The Incidental Economist blog, Austin Frakt highlights some academic studies on the effects of reducing the number of protected drug classes (i.e., conditions for which virtually all drugs must be covered by Part D drug plans) and limiting the number of plans sponsors can offer in each service region. He points to one of his own journal articles which found that allowing drug plans to exclude some drugs at the expense of others increases drug plans’ bargaining power to negotiate lower prices. This is a strategy used by the Department of Veterans Affairs. This is also consistent with an NCPA brief by Alain Enthoven and Kyna Fong that explains “bargaining power.” How this may affect seniors would likely vary by condition.
The rationale behind limiting the number of plans offered in each service region is based on the dubious notion that seniors are confused by too much choice. Seniors purportedly complained that numerous plans made it difficult to identify the best plan. Of course, any given plan that one senior doesn’t prefer and thinks just adds to their confusion may be the plan another seniors decides is the optimal plan. Basically, the Obama administration thinks the plans offered should reflect only those plans that CMS thinks seniors should have.
Frakt points to various articles in the literature that argue that too much choice can lead to seniors spend more than they should, but also points to literature that finds the over-spending isn’t persistent and that seniors figure out which plans work for them after the first year.