How Medicare Got Squeezed by Rising Drug Prices

By Yuval Rosenberg and Michael Rainey Medicare Spending on Brand-Name Drugs Soared Even as Prescriptions Fell Medicare has spent more on brand-name medications in recent years even as the program’s beneficiaries filled fewer prescriptions for such drugs, according to a [new report]( by a government watchdog. The study by the Department of Health and Human Services’ inspector general found that the number of prescriptions for brand-name medications filled under Medicare’s Part D drug program fell by 17 percent from 2011 to 2015. Yet the reimbursement cost of those prescriptions increased by 77 percent, from $58 billion to $102 billion. Even after accounting for drug manufacturer rebates, reimbursements still rose by 62 percent — and, over time, the percentage of drugs for which manufacturers provided rebates shrank. The report found that the average cost of every pill, capsule or milliliter of drug being dispensed rose by 29 percent over the five years studied, and about half of brand-name drugs reimbursed throughout that period saw costs rise by at least 50 percent. As a result, Medicare spent $12 billion more on those same drugs in 2015 than in 2011. Overall, the cost of brand-name drugs grew nearly six times faster than the rate of inflation over the five years. It wasn’t just the federal government getting squeezed by rising prices. Medicare beneficiaries paid more out of pocket, too, with average annual costs climbing by 40 percent, from $161 in 2011 to $225 in 2015. The percentage of beneficiaries facing annual out-of-pocket costs of $2,000 or more nearly doubled over the five-year span. While new specialty drugs with eye-popping prices have drawn attention and scrutiny in recent years, the report notes that the high cost of the most commonly prescribed drugs — typically maintenance drugs to treat chronic conditions — is a particular problem for Medicare and program beneficiaries. The average costs for the 200 most commonly prescribed brand-name drugs rose nearly twice as fast as the overall rate of increase (57 percent vs. 29 percent). Medicare beneficiaries’ total out-of-pocket costs were highest for brand-name insulins, cholesterol-lowering drugs and asthma inhalers. “Because maintenance drugs are typically used to treat chronic, long-term conditions, increasing reimbursement for these drugs will continue to affect Part D and its beneficiaries for years to come,” the report concludes. About 43 million Medicare beneficiaries have prescription coverage under a Part D plan. [Share]( [Tweet]( [Forward]( UN Report Paints Dire Picture of US Poverty – and Says Tax Cuts Are Making It Worse The United Nations released a scathing report on poverty and inequality in the U.S. that criticizes the Trump administration for making a bad situation worse through its fiscal policies. In her [writeup]( of the piece, Amanda Erickson of The Washington Post points out that the “United Nations has never been shy about attacking the United States,” and this report is no exception. The special report’s author, New York University law professor Philip Alston, is sharply critical of the injustices produced by the U.S. economic system and the failure by the political system to address them: “The United States already leads the developed world in income and wealth inequality, and it is now moving full steam ahead to make itself even more unequal,” Alston writes. The tax cuts are singled out for criticism, as well as the ongoing Republican effort to cut social welfare programs such as Medicaid and food stamps: “The $1.5 trillion in tax cuts in December 2017 overwhelmingly benefited the wealthy and worsened inequality. … The planned dramatic cuts in welfare will essentially shred crucial dimensions of a safety net that is already full of holes.” Alston based his report on a 12-day trip last December to seven impoverished areas around the country, including Skid Row in Los Angles, rural Alabama and Puerto Rico. Alston said he encountered conditions not found in other developed countries, from poor sanitation to a lack of proper medical care. Citing U.S. Census data, Alston says that about 40 million Americans live in poverty, with 18.5 million in extreme poverty and 5.3 million in “Third World conditions of absolute poverty.” Alston will present his report to the United Nations Human Rights Council later this month. Read [the full UN report here](. Will the Coming Spending Fights Lead to a Government Shutdown? [Politico reports]( “Government funding runs out Sept. 30, and Congress has vowed to spend a bunch of time this summer passing appropriations bills. The House is in the driver's seat, and will lead the process. President Donald Trump is going to push, vehemently, for more funding for his border wall, and that might complicate the process. In the coming weeks, you’ll hear conservatives push for immediate consideration of a funding bill that avoids the September shut down. On another note, the budget-cutting [rescissions] bill is still stalled in the House, as leaders have had a hard time convincing enough Republicans that spending cuts are a good idea at the moment. OMB is tweaking the request in order to get more votes.” [Axios’ Jonathan Swan]( reports that many on Capitol Hill worry that Trump will play a game of chicken, using the September deadline for government funding to press for border wall funding. “Hill Republicans want Trump to sign a short-term funding bill, rather than shut down the government so close to the midterms,” Swan writes. “But nobody I've spoken to is 100% confident he’ll do that.” Swan adds that, according to a senior administration official, a number of Republicans Trump respects have told the president that a shutdown just ahead of the midterm elections would not be in his best interests. US Companies on Path to Inject Trillions into Economy Awash in cash thanks in part to the tax cuts passed in December, U.S. companies will inject more than $2 trillion into the U.S. economy this year through buybacks, dividends and mergers and acquisitions, according to data from UBS investment strategist Keith Parker cited by [CNBC](. Assuming current trends hold, UBS expects to see $700 billion to $800 billion in share buybacks in 2018. Dividends could top $500 billion, while the value of M&A deals could hit $1.3 trillion. If the bank’s projections are accurate, the total value of this financial activity will hit roughly $2.5 trillion — or 12.5 percent of GDP, CNBC notes. Like this newsletter? Tell your friends they can [sign up here]( to get their own copy. We always welcome your feedback. Email yrosenberg@thefiscaltimes.com. Or connect with us on Twitter: [@yuvalrosenberg]( and [@TheFiscalTimes](. A Cheaper Way to Build the 355-Ship Navy? The U.S. Navy plans to increase the size of its fleet to 355 ships, up from the current level of 283 ships, and President Trump has enthusiastically supported the buildup, recently telling graduates of the U.S. Naval Academy that “very soon you are going to get to 355 beautiful ships.” However, as numerous experts have [pointed out]( the 355-ship Navy is a long-term project, one that will likely take many years to achieve. "There is no ‘very soon’ about growing the size of the Navy," Todd Harrison, a defense analyst with the Center for Strategic and International Studies, [told]( PolitiFact. The Congressional Budget Office [estimated]( in April 2017 that it would take at least 18 years to hit the 355-ship target, and that’s assuming there’s an enormous and sustained increase in funding. The Pentagon would need to spend $102 billion (in 2017 dollars) per year through 2047 to build and operate the fleet. Ship construction alone would cost more than $26 billion per year — which, the CBO points out, “is more than 60 percent above the average amount the Congress has appropriated for that purpose over the past 30 years.” Another CBO [report]( released last month, pointed out that there’s more than one way to increase the size of the fleet: In addition to building more ships, the Navy can delay the retirement of existing ships and/or reactivate ships that have been decommissioned. The CBO examined the third option to see if it made financial sense to bring retired ships back into service. Here are some of the CBO’s conclusions, based on its analysis of ship reactivations since World War II: - reactivating a decommissioned ship typically costs at least 10 percent of the price of building a new one, but potentially as much as 45 percent if the combat systems need to be upgraded - reactivated combat ships are less capable and have much shorter service lives — five to seven years, compared to 25 to 40 years for newly built ships - cargo ships are cheaper and faster to refurbish than combat ships, though much depends on how well a given ship was maintained in storage - renovation costs have increased over time, due to the sophistication of modern combat systems. Some naval analysts are pushing for the refurbishment of the 22 Oliver Hazard Perry class frigates currently in mothballs, 10 of which have been maintained at the highest level for potential foreign military sales. The Navy estimates it would cost about $200 million to renovate each 1980s-era ship, roughly 25 percent of the replacement cost. However, that estimate does not include the cost of fully upgrading the combat systems, and the renovated ships would likely be limited to drug interdiction duties or Arctic patrols without more extensive work. On the other hand, the renovations would take only nine months, far less than the five years it takes to build a modern combat ship from scratch, and the work could be done in shipyards around the country, bringing more ships online at once. The CBO concluded that the “cost and benefits of reactivation would depend on the role the ships would play in the Navy’s long-term plans.” Bringing the ships back to full combat capabilities would require more time and expense, but if the Navy is interested in a quick increase in size with ships of limited capacity and lifespan, refurbishment could be a viable option. 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