How Medicare Part D changed the drug industry

The prescription drug plan has created millions of senior customers for the pharmaceutical industry over ten years.

Later today, a U.S. Senate committee is scheduled to hold a hearing on the prescription drug benefit program for seniors known as Medicare Part D.

The program has been around now for 10 years. And it has meant tens of millions of new customers for pharmaceutical companies says Mark Duggan, an economist at the University of Pennsylvania.

“It expanded insurance coverage to many elderly and disabled Medicare recipients, who otherwise wouldn’t have that coverage,” says Duggan. “But on the other hand, the plans that Medicare recipients joined were very effective at negotiating price discounts.”

Duggan says the Part D plans, which are run by insurance companies, have steered patients to generics. He says that’s helped keep down the cost of prescription drugs. Spending increases have slowed from 11 percent a year to less than 4 percent.

Yale economist Fiona Scott Morton says the emphasis on cheaper drugs has pushed companies to be more innovative if they want a big payday. 

“It forces firms to think about what can I invent that's not just a me-too drug. But is something that breaks new ground,” she says.

Still, Scott Morton says thanks to Part D, drug makers are selling their products to millions more Americans than they were 10 years ago.

About the author

Dan Gorenstein is the senior reporter for Marketplace’s Health Desk. You can follow him on Twitter @dmgorenstein.

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