"Medicare Part D was designed to foster competition between plan sponsors to constrain drug spending. In assessing the impact of competition, CBO found that a larger number of plan sponsors in a region was associated with lower bids, on average, for the group of plans analyzed. … However, between 2007 and 2010, the average total number of plan sponsors per region fell by 4 (from 22 to 18), because more sponsors exited the market or merged with other sponsors than entered the market; that decrease in competition is associated with higher bids and higher government spending. … As Part D is currently structured, two features of the program could be changed to encourage plan sponsors to submit lower bids for their plans. First, in the component of Part D that serves low-income beneficiaries, the government usually pays the full amount of a plan's bid up to a threshold, regardless of whether other plans bid lower. Second, low-income beneficiaries enrolled in plans whose bid rises above the threshold are automatically reassigned in equal proportions to plans with bids below the threshold (unless a beneficiary has actively signed up for a particular plan). Both of those features encourage plans to set their bids close to (though below) the threshold. … The rules of the program could be altered, however, in ways that would continue to protect low-income beneficiaries but would also lower bids and government spending. For example, the government could adopt a reassignment mechanism that preferentially assigned low-income beneficiaries to the plans with premiums furthest below the benchmark; that approach would provide a stronger incentive to plans to submit low bids and would reduce the government’s spending even if plans did not alter their bids."
The full report is here:
Competition and the Cost of Medicare’s Prescription Drug Program
and an accompanying technical working paper on competition here:
Examining the Number of Competitors and the Cost of Medicare Part D
by Andrew Stocking, James Baumgardner, Melinda Buntin, and Anna Cook