Medicare needs way to negotiate with drug makers
Saturday, December 9, 2006 11:33 PM PST
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E-mail this articleCongressional debate over revisiting the Medicare drug benefit to cut costs took an unexpected turn this month when the government reported that the benefit was not nearly so expensive as had been projected. It will cost $30 billion this year, some $13 billion less than expected.
The news would seem to lend support to those who oppose giving the government authority to negotiation with drug companies for lower prices. They've long maintained that competition would work to hold down the benefit's cost. And, according to the Centers for Medicare and Medicaid Services, competition did play a part in this welcome development. But a lower than anticipated in enrollment in the program played a bigger part. Also, drug prices rose less than anticipated between 2003, when the benefit was enacted, and 2005, when it took effect.
In any event, why not capture the additional savings this negotiating authority could provide? The practice of negotiating drug prices with pharmaceutical companies is well established in both the private and public sectors. It's standard practice for HMOs. The Veterans Affairs Department has exercised this authority for many years to good effect.
Indeed, a 2005 study by Families USA, a senior advocacy groups, found that patients receiving VA drug benefits spent about $220 less for a yearlong prescription than seniors using the Medicare drug card paid for the same prescription. Earlier studies found that Medicare could have cut its drug costs by half in 2004 had it been able to negotiate for discounts on drug purchases.
Sen. Ron Wyden, D-Ore., who introduced legislation last year to give Medicare negotiating authority, terms it "Economics 101." Most people would likely agree. So why did Congress explicitly deny Medicare this bargaining power when enacting the drug benefit in 2003? Congressional leaders clearly were currying favor with the pharmaceutical industry -- an industry that contributes millions of dollars annually to congressional campaign coffers.
This political incentive is hardly an acceptable reason to continue denying taxpayers and seniors the relief this change could bring them. Bargaining for lower prices is only sensible. The VA does it. HMOs do it. Foreign buyers of U.S.-made drugs use their purchasing power to get better deals. Only Medicare and the seniors it serves are left to the mercy of the drug industry. That's neither right nor fiscally sensible.
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