Part D: Where the savings really come from

Part D: Where the savings really come from

03.15.13 | By Jenni Brewer

Senior coupleReading Matthew Yglesias' post in Slate on Thursday about why Medicare Part D costs less than predicted, I found his argument a bit odd. Without citing any sources, he asserted that the cost savings in this program have occurred due to a slowdown in the manufacturing of new drugs. I'd respectively disagree on two fronts. First, innovation is alive and well in medicine. In FY2012, 39 new medicines were approved by the FDA. More than 300 innovative medicines have been approved in just the past decade - many of which are first in class drugs for which there were previously few, in any, treatment options. Check out our medicines in development reports to learn more about the cutting-edge medicines that are in development.

Secondly, independent sources back up the fact that it's a market-based structure coupled with generic utilization that has allowed Part D to be so successful. Even the GAO has reported that Part D plans lower costs for beneficiaries - lower premiums, deductibles, and copays - "through their ability to negotiate prices with drug manufacturers and pharmacies." Four of our five Part D prescriptions are generic and this is reflective of the lifecycle of a medicine - not lack of innovation. Cost savings are possible because innovative biopharmaceutical research companies provide investment and research into new medicines and, over time, these lead to generic copies. Without the innovative new medicines, there would not be the generic versions that patients use at lower cost for many years. If you're curious to learn more, check out this video on a medicine's lifecycle.

By increasing access to medicines, Part D helps reduce Medicare spending on other more expensive medical services. According to a study in the Journal of the American Medical Association, the implementation of Part D was followed by a $1,200 decrease in nondrug medical spending in the second year of the program among beneficiaries who had limited to no prior drug coverage. These savings, coupled with the fact that 11 million seniors gained comprehensive prescription drug coverage, implies an overall savings of $13.4 billion on other Medicare services in 2007, the first full year of the program.

How can you deny that the market-based structure isn't a key element of Part D's success?

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