Negotiated prices are the result of bargaining power — the ability of the drug plan to deny business to a firm if their bid isn’t favorable. However, the Obama administration wants to prevent drug plans from excluding the losing bidders from participating in a drug plan if the losing bidders are willing to abide by the contract terms of the winning (pharmacy network) bidder. Thus, the incentive will be to bid high knowing a losing bid will boost the prices seniors (and their drug plans) pay, without reducing the number of customers walking through the door. Medicare’s reasoning is that preferred pharmacy networks must cost taxpayers more — despite CMS’s own research that found preferred networks lower taxpayer costs three-fourths of the time. Go figure!
By virtually all measures, the program has been a great success. Seniors’ satisfaction rates average about 90 percent to 95 percent. Though subsidized by Medicare, the premiums seniors pay are a function of the plan they choose — and ultimately of total program expenditures. Premiums have remained affordable because drug spending per member has been far lower than projected: