NCPA - National Center for Policy Analysis

Low Rebates in Medicare Wasting Taxpayer Dollars

April 28, 2015

Medicare is wasting taxpayer dollars due to a faulty law that severely limits the amount of money it can get back in drug rebates, a signthat drug makers still wield a lot of power in negotiations with the taxpayer-backed agency.

The rebate rate at Medicaid is effectively triple the rate of rebates Medicare gets, says a new report to Congress from the Department of Health and Human Services Office of Inspector General.

Congress is to blame for disparities in the law it writes on coverage by the federal, taxpayer-backed health care programs. A federal law restricts Medicare from putting in place a specific rebate structure for its Medicare Part D drugs. This program subsidizes the cost of prescription drugs for taxpayers. As a result, Medicare effectively pays substantially more than Medicaid pays for drug coverage.

Here is a look at the differences:

  • In 2012, Medicare received $10.3 billion in rebates for $66.5 billion worth of drug payouts.
  • During the same time, Medicaid paid about $35.7 billion but received $16.7 billion in rebates.
  • The rebate rate difference between Medicare and Medicaid is some 32 percent.

For some reason, Medicaid has a straightforward arrangement where drug manufacturers are generally required to enter into rebate agreements with the HHS secretary. Meanwhile, the HHS secretary is prohibited from negotiating with Medicare.

Source: Elizabeth MacDonald, "More Government Waste Found at Medicare," Fox Business, April 27, 2015. 


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