Professor Fiona Scott Morton Testifies before Congress on Medicare Drug Plan

Fiona Scott Morton, professor of economics and senior associate dean for faculty development at SOM, delivered testimony to Congress about Medicare Part D, the prescription drug program begun in 2006 that provides drug coverage to more than 25 million people. In prepared remarks presented to the House Committee on Oversight and Government Reform on July 24, 2008, Scott Morton discussed how the economics of the pharmaceutical industry and Medicaid rebates impact Medicare Part D.

Since most drugs once they are on the market have low production costs, and with close to 50% of the prescription drug spending in the country due to people eligible for Medicaid and Medicare, it would be possible for the government's buying power to exert a great deal of price pressure, according to Scott Morton. But because the pharmaceutical industry has significant up-front costs involved in discovering and developing new drugs, she warned that it is in society's best interest to maintain incentives to innovate. She explained, "procurement pricing policy is not innocuous; the public pricing scheme used to pay for drugs invented and developed in the private market will strongly affect the level of innovation in the industry."

Scott Morton drew critical distinctions between Medicaid, the health program for low-income Americans which has a mandate to obtain the lowest prices available, and the much larger Medicare Part D. The introduction of Part D included moving citizens who are eligible for both programs from a Medicaid drug benefit to the new Medicare drug benefit. Because of the mandated minimum prices in Medicaid, this move raised the cost of providing medications to dually-eligible citizens, which was the main topic of concern for the Congressional committee.

Scott Morton suggested that it would be preferable for Congress to move these enrollees back into Medicaid than to extend Medicaid mandated prices to some or all enrollees in Part D. She explained that Part D plans seem to be negotiating for reasonably low prices, and in particular, the previously uninsured pay much lower prices through Part D than they did when they paid cash at the pharmacy.

Read her complete testimony.