Democrats are demanding a hearing on Medicare drug rebates after it was revealed that taxpayers and beneficiaries are vastly overpaying for the Part D benefit. In the first comprehensive review of the rebate program, in which drug companies pay rebates to Medicare-participating plans, Department of Health and Human Services Inspector General Daniel Levinson discovered that plans routinely underestimate rebates in their bids to the government.

“Because of the size of these rebates, it is vital that rebates be reported accurately and that the Government and beneficiaries receive the full benefit of these rebates,” wrote Levinson. “When sponsors underestimate rebates in their bids, beneficiary premiums are higher than they otherwise would be and both the Government and beneficiaries overpay for the benefit.”

The report found that in 2008, for example, 69 percent of plans underestimated their rebates. Democrats said the practice results in approximately $1.9 billion per year in overpayments by taxpayers and beneficiaries. While the government is able to recover some of these lost funds in subsequent plan years, beneficiaries’ overpayments are forever lost.

The Republican Medicare Modernization Act of 2003 prohibits the federal government from negotiating directly with drug companies, however, participating plans are supposed to negotiate lower costs on behalf of beneficiaries and the government. The Democrats leading the charge, Henry Waxman (Calif.), Frank Pallone (N.J.) and Diana DeGette (Col.), wrote in their request for a hearing, “These failures present a severe risk to program integrity, reduce beneficiaries access to important drugs, increase drug costs for seniors, and cause billions of dollars in wasted taxpayer funds.”

In addition to their questionable rebate practice, participating plans actively discouraged the use of competitors’ drugs, stifling free-market competition and reducing patients’ access to drugs, the report found. Furthermore, Democrats called the plans’ efforts to negotiate with drug companies “ineffective.”