Noninterference
Q. What is the non-interference provision & where did it come from?
A. The non-interference provision in the Medicare Prescription Drug, Improvement and Modernization Act (MMA) prohibits the government from establishing a formulary, or a list of drugs thata Medicare Part D plan will cover or exclude. It also prohibits the government from interfering in the negotiations between Medicare’s prescription drug plans and pharmaceutical manufacturers and pharmacies including dictating a price structure.
The noninterference rule, uses the same or similar language as that included in many Medicare prescription drug proposals offered by both Democrats and Republicans. For example, in 1999 President Clinton supported market competition rather than government negotiation in his Medicare proposal that appeared in the Daschle Medicare bill of 2000 (S. 2541).
From the Text of the 1999 Clinton Medicare Modernization Proposal: “Under this proposal, Medicare would not set prices for drugs. Prices would be determined through negotiations between the private benefit administrators and drug manufacturers.”
Q. What is the rule’s purpose?
A.To protect consumers against the adverse effects of price controls such as access restrictions which come with government control over health care.The non-interference provision preserves the competitive private-sector delivery system.
Q. But why should the government be barred from negotiating—doesn’t that mean pharmaceutical companies simply name their price – resulting in higher costs for the government?
A. No. By using private plans and competing market forces, Medicare Part D actually negotiates better savings than the government. The private plans contracted by Medicare have market clout, expertise and a long record of success in negotiating savings. This is consistent with the whole structure of Medicare Part D, which provides universal coverage through competing private plans.
Medicare Part D gives Medicare beneficiaries the same negotiating power that works for Members of Congress and 190 million other Americans.[i] Similar to the Federal Employee Health Benefits Program (FEHBP), PBM’s use negotiation tools like price discounts and rebates to lower costs for beneficiaries.The non-partisan Congressional Budget Office (CBO) found that multiple competing private-sector plans can contain costs more effectively than a government-controlled benefit.
According to a 2004 CBO report, gross savings under government-run fallback plans and plans with reduced risk were estimated to average only 12.5 percent throughout the budget window of 2006 - 2013, compared to the much higher estimates of an average of 20 percent in 2006 to an average of 25 percent by 2013 for plans, like those operating in the program today, that bore the statutory level of risk.[ii]
Q. But hasn’t CBO also said that government negotiation could get some savings if it focused on drugs without competitors in their therapeutic class?
A. Drugs without competitors in their therapeutic class make up a very small share of total spending on Part D drugs, probably no more than a few percentage points. Thus, any savings would be very small. In addition, prescription drug insurance plans do have leverage even when it comes to these drugs. Some of the tools at their disposal:
-formulary tier placement
-utilization management tools
-favorable manufacturer treatment for drugs in other classes
Q. If the government did negotiate, how would that work?
A. If the noninterference provision was repealed, the HHS Secretary could threaten to exclude a drug from the formulary. The exclusion of drugs from a government-established national formulary would limit patients’ access to medicines and eliminate competition among plans, which is counter to what the MMA was designed to do. In addition to establishing a national formulary, the Secretary may have to make decisions about all the terms of coverage (tiering, cost sharing, prior authorization, etc.)—effectively converting the Medicare prescription drug benefit into a program in which the government rather than private plans makes all the key decisions. The Secretary would likely have to resort to arbitrary price controls, which economists agree will harm future drug development for the cures of tomorrow, and which proponents of non-interference repeal profess to oppose.
Q.What’s wrong with a national formulary?
A..A national formulary essentially creates a one-size-fits all program for seniors who have individual needs. Medicines treating a given illness often differ significantly in the effects that they have on individual patients and in their interactions and side effects with the various medical conditions a patient may have and the other medicines a patient may be taking. Under the Medicare drug program, Medicare beneficiaries have a choice among competing plans that are allowed some latitude in designing and differentiating their plan offerings. Furthermore, Medicare beneficiaries can switch plans every year.
Q. Doesn’t the government already successfully negotiate on behalf of veterans under the VA system?
A. No. The VA uses access restrictions and price controls in determining payment for medicines. The prices available to the VA are a result of statutory price controls that mandate a price at least 24 percent below the average price paid to wholesalers for drugs distributed to nonfederal purchasers.VA is a closed health care system where the government dictates the drug benefit, owns the hospitals and pharmacies, and employs the physicians, giving the government enormous influence over the medicines prescribed to patients. Unlike the Medicare program, VA does not offer a choice among plans. Maybe that explains why approximately 1 million veterans who are enrolled in the VA Health Care System have enrolled in a Medicare prescription drug plan-- that represents about 40% of Medicare eligible veterans enrolled in the VA. Because of the closed system and restricted formulary, the VA model isunlikely to work for over 40 million Medicare beneficiaries.[iii]
Q.If you repealed the noninterference rule, could you “fix” the coverage gap in the Medicare prescription drug benefit?
A.. No. CBO has said that repealing the rule would yield only negligible savings, while filling the coverage gap would cost approximately $427 billion over a decade. The real cause of the coverage gap is that Congress had a fixed amount of money to devote to the prescription drug program and that amount was not sufficient to cover all drug costs for seniors and disabled persons. Congress chose to apportion the funds available by designing the program to assure that the low income population would have complete coverage with no gap and everyone else would have a front-end benefit (likely as a reaction to the earlier attempt to devise a catastrophic coverage-only benefit.
Q.What’s wrong with price controls?
A..Detractors of the drug benefit criticize the privately negotiated prices between Medicare plans and pharmaceutical manufacturers and pharmacies. They suggest that administered pricing in Medicare is preferable. However, we know that arbitrarily imposed price controls would not, according to the Congressional Budget Office, save money. Instead, they would restrict access to medicines and cripple innovation, just as they do in Europe and elsewhere. Price controls do not work as evidenced by the problems that both providers and beneficiaries face on a regular basis in other parts of the Medicare program. No provider group has been more affected by price controls in Medicare than physicians, who, because of an arbitrary payment formula, are annually at risk for significant payment cuts. In fact, Congress has had to pass temporary, multi-billion dollar “fixes” almost every year for the last decade because the physician payment formula isn’t working. Congress shouldn’t replicate this type of flawed system by using price controls in Part D.
Q. Is competition among private plans working?
A.The Medicare prescription drug program is offering greater access to prescription drugs at lower costs in 2007 which is saving money for both seniors and the taxpayers.
Broader Formularies -Plans in 2007 on average will cover about 4,300 drugs on their formularies -- an increase of about 13% from the 3,800 drugs covered, on average, in 2006.[iv]
Lower Costs than Projected for Beneficiaries and Taxpayers. The program’s projected net total cost to the federal government over the next decade[v] is $200 billion below previous estimates. Plan bids for 2007 are on average 10% lower than they were in 2006 due to robust competition. According to CMS, the average premium next year will be about $24 a month, which is 40 percent less than projected last year for 2007.[vi] The average monthly dollar amount seniors spend on prescription drugs has fallen 54% since the Medicare Prescription drug benefit went into effect.
Beneficiary Satisfaction. Beneficiaries are satisfied with the program.
- According to the Kaiser Family Foundation tracking survey released in July, 81% of Medicare drug plan enrollees are satisfied with their plan.[vii]
- According to a new study released by J.D. Power and Associates, 75% of beneficiaries enrolled in the program are satisfied with the plan they selected and its coverage.
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[i] CRS Report for Congress “The Pros and Cons of Allowing the Federal Government to Negotiate Prescription Drug Prices; February 18, 2005; page 4.
[ii] CBO Paper “A Detailed Description of CBO’s Cost Estimate for the Medicare Prescription Drug Benefit”; July 2004; page 14.
[iii]Source: HHS Press Release; June 14, 2006; “Over 38 Million People with Medicare Now Receiving Prescription Drug Coverage” (found at
[iv]CMS Press Release; September 29, 2006; “Medicare Releases Data on 2007 Drug Plan Options”
[v]CMS actuary John Shatto as reported by Associated Press, “Medicare Drug Benefit Came in Under Budget”; November 28, 2006
[vi] C. Borger et.al. “Health Spending Projections Through 2015: Changes on the Horizon.” Health Affairs, Web Exclusive 22 February 2006: W61-W73 and Centers for Medicare & Medicaid Services, “National Health Care Expenditures Projections: 2005-2015,” February 22, 2006,
CMS Fact Sheet; August 15, 2006; “Strong Competition and Beneficiary Choices Result in Drug Coverage with Lower Costs Than Predicted Last Year” (found at and CMS Press Release; August 15, 2006; “National Benchmark Shows Impact Of Strong Competitive Bidding And Smart Beneficiary Choices: (found at
[vii] Kaiser Family Foundation tracking survey “Seniors’ Early Experiences with Their New Medicare Drug Plans – June 2006 (found at