Protecting Consumers From Rapid Drug Price Increases

Posted on by Karina

It’s no secret that the rising costs of health care are straining the wallets of Americans, the balance sheets of our businesses, and the long term health of our federal budget. A Kaiser Family Foundation survey earlier this year found that a majority of Americans, or a member of their household, have delayed or skipped health care in the past year. Prescription drugs are no exception–Kaiser found 29% did not fill a prescription for medicine and 18% cut pills in half or skipped doses.

As Americans are losing coverage, struggling with higher premiums, and facing greater out-of-pocket costs, the New York Times reports the pharmaceutical industry “has been raising its prices at the fastest rate in years”:

Drug Makers Raise Prices in Face of Health Care Reform

In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That will add more than $10 billion to the nation's drug bill, which is on track to exceed $300 billion this year. By at least one analysis, it is the highest annual rate of inflation for drug prices since 1992.

The drug trend is distinctly at odds with the direction of the Consumer Price Index, which has fallen by 1.3 percent in the last year.

Though one industry spokesman told the New York Times “price adjustments for our products have no connection to health care reform,” Harvard health economist Joseph Newhouse explained “they try to maximize their profits.” In fact, pharmaceutical manufacturers used the same tactic before the start of the Medicare Part D program in 2006, raising drug prices dramatically in anticipation of gaining millions of new insured customers. While Americans currently see little protection from high drug prices, the Affordable Health Care for America Act will create new protections for consumers and taxpayers from these rapid price increases–from closing the Medicare Part D ‘donut hole’ to adding transparency in drug pricing. Learn more about the provisions:


Closes the Part D donut hole. H.R. 3962 closes the Part D donut hole by $500 in 2010 and eliminates the donut hole entirely by 2019. This protects seniors by ending the gaps in coverage that force them to pay the full cost of their drugs.

Provides insurance coverage for the 36 million Americans who would otherwise be uninsured. The Congressional Budget Office (CBO) estimates that 36 million uninsured Americans will receive coverage under H.R. 3962 through their employer, a plan in the Health Insurance Exchange, or Medicaid. This insurance will cover much of the cost of prescription drugs. Plans in the Exchange are encouraged to use flat copayments, rather than charge enrollees a percentage of the drug cost (coinsurance).

HHS Secretary drug price negotiations. H.R. 3962 requires that the Secretary of the Department of Health and Human Services (HHS) negotiate with Part D manufacturers for lower prices, providing new leverage to help control Part D drug price increases. The Secretary will also negotiate for lower drug prices in the new public health insurance option offered through the Exchange.

Transparency in drug pricing. H.R. 3692 requires new transparency in drug pricing for plans in the Exchange that use pharmaceutical benefit managers (PBMs). This will reduce waste, fraud, and abuse and give patients more information about drug prices and spending.

Encourages use of generic drugs. For patients who are able to switch to lower-cost generic drugs, H.R. 3962 clarifies that Part D plans can offer a free generic prescription fill when a Part D enrollee switches to the generic.


Medicaid rebates include inflation protection. H.R. 3692 expands and increases the Medicaid drug rebate, which requires that manufacturers pay a rebate to cover cost increases that exceed the inflation rate. These payments will protect taxpayers from price increases that occur before or after the health care reform legislation goes into effect.

New Medicare Part D rebates. H.R. 3692 also contains new Part D rebates that help cut the cost of providing drugs for dually eligible and low-income enrollees. These Part D rebates are based on the Medicaid rebates. They will save taxpayers billions of dollars each year.

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