US House Report Cites Abuses of Privatization of Medicare Drug Plans

The privatization of Medicare drug plans have resulted in six-fold increases in administrative costs, dramatic reductions in drug price rebates and widespread failure by insurers to pass rebates onto patients, according to a report released on Monday by the US House Oversight and Government Reform Committee.

“Privatizing the delivery of the drug benefit has enriched the drug companies and insurance industry at the expense of seniors and taxpayers,” said committee chairman Rep. Henry Waxman (D-Calif.). “The program’s inflated administrative costs and meager drug rebates will cost taxpayers and seniors $15 billion this year alone.”

The Medicare Part D prescription drug program, previously run directly by the federal government, now relies on private insurers to provide coverage to beneficiaries. Advocates of the new system have argued that competition would achieve better efficiencies and result in better coverage at more affordable prices.

However, the report says that the privatization model has not delivered these outcomes and also notes that drug manufacturer rebates received by Part D insurers are significantly smaller than rebates received by Medicaid.

The committee obtained information from the 12 leading insurers that offer Medicare prescription drug plans and Medicare Advantage drug plans.

Analysis of the cost and pricing data received indicates that the use of private insurers is driving up costs and producing only limited savings on drug prices.

The report’s key findings include:

  • The administrative expenses of Part D insurers are six times higher than those under traditional Medicare
  • Insurers have negotiated drug manufacturer rebates of only 8.1%, compared to drug spending rebates of 26% under traditional Medicare
  • Insurers derive profits by receiving rebates on drug purchases which they do not pass on to beneficiaries
  • Insurers have established ineffective drug pricing formulas that leave beneficiaries and taxpayers vulnerable to price increases
  • Insurers have a mixed record in promoting the use of generic drugs

The committee’s report is available at:


1 Comment (+add yours?)

  1. euandus2
    Nov 16, 2009 @ 19:01:29

    The drug companies claim they are raising prices because some of their patents will expire soon. However, it is convenient that they are doing so before the planned health insurance reforms go into effect. I recommend the following post:


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