May 22, 2019

Medicare Part D: The Noninterference Clause


KEY TAKEAWAYS

  • Medicare Part D includes a “noninterference clause” that protects market competition and patient access by prohibiting the government from interfering in negotiations among insurers, drug manufacturers, and pharmacies.
  • Democrats have proposed repealing this clause to allow the Department of Health and Human Services to directly negotiate drug prices for Medicare.
  • The Congressional Budget Office has predicted this would have a “negligible” effect on federal spending on prescription drugs. 

Medicare Part D was created in 2003 as an optional prescription drug benefit for seniors. The authorizing law contains a provision that bars the secretary of Health and Human Services from interfering in negotiations among insurers, drug manufacturers, and pharmacies. Lawmakers included the provision to ensure adequate competition and innovation in the drug marketplace. The Congressional Budget Office wrote in 2007 that revoking this protection – as some Democrats would like to do – would have a “negligible effect on federal spending” unless the government restricts access to drugs. It reaffirmed this prediction in a May 17, 2019, letter.

negotiating Drug Pricing

The noninterference clause says: “the Secretary: (1) may not interfere with the negotiations between drug manufacturers and pharmacies and [prescription drug plan] sponsors; and (2) may not require a particular formulary or institute a price structure for the reimbursement of covered Part D drugs.” It leaves negotiations to insurers and other private businesses. Medicare Part D plans negotiate drug prices, determine which drugs are covered, and what patients will pay.

Insurers offer options that allow customers to pick the plan that best meets their needs. Each year, prescription drug plans participating in Medicare bid to contract with the program. The bidding process incentivizes insurers to keep prices low to attract Part D customers.

The Part D system of private negotiation has worked. Beneficiaries can choose from a variety of different plans, premiums have been low and stable for many years. The vast majority of customers are satisfied with the program.

Drug Pricing

Nonetheless, some Democrats are proposing to eliminate the noninterference clause, arguing Medicare drug prices would fall as a result. Senator Sanders has introduced a bill that would allow drug prices to be set on the basis of other federal programs and give HHS the authority to create a drug formulary to restrict access to certain medicines. CBO has said that striking the noninterference clause would not give the government enough leverage in negotiations unless it was coupled with something like power to control access to drugs.

Giving HHS such broad authority to determine drug prices could lead the agency to keep drugs off the formulary simply because it decides they are too expensive. Under the current system, where businesses engage in these negotiations, customers are free to reject a plan that restricts access too much. If Washington is setting the limits, seniors would be left with no other option.

Congress has work to do to contain the cost of health care, including prescription drugs. It should be done in ways that increase competition and protect seniors’ access to the medicines they rely on. We do not need to have prices and access determined by Washington bureaucrats.

Issue Tag: Health Care