Potential overestimations on cost of new Medicare Modernization Act

According to a report by Wood Mackenzie, a premier provider of global life sciences information, the Congressional Budget Office (CBO) and Centers for Medicare and Medicaid Services (CMS) have potentially overestimated the total 10-year cost of the new Medicare Modernization Act (MMA).

The findings of the Medicare Insight study could have important implications not only for the medicare market, but also for the US prescription drug market as a whole. With the total medicare market accounting for 40% of total US drug spending, MMA is likely to be the major change agent not just in the medicare market, but in the entire US pharmaceutical and biotechnology market for the rest of this decade.

Medicare Insight finds that both CBO and CMS may have overestimated the growth rate of drug costs, showing that the growth of per-capita cost over the 10-year budget period, 2004-2013, could be 5 to 8% per year, as opposed to the 9.5% forecast by CBO and CMS. Wood Mackenzie anticipates that the impact of key blockbusters coming off patent will slow down the growth of the US drug market.

In addition, sales of part D drugs are at a slower rate than predicted, with the enrollment rate slower than the 87 to 94% predicted for early 2006, thereby limiting the growth in the cost of drugs for MMA even further. The difference in growth rate estimated by Wood Mackenzie could result in total drug costs being from 5 percent to 20 percent lower over the total budget period than estimated by the government.