Monday, November 13, 2006
Medicare
Bush Administration Says It Opposes Democrats' Plan
To Allow Government To Negotiate Medicare Drug Prices
The Bush administration will oppose any
attempts by congressional Democrats to pass legislation that would
authorize the government to negotiate with pharmaceutical companies under
the Medicare prescription drug benefit, according to HHS Secretary Mike Leavitt, the
New York Times reports. The 2003 Medicare law
prohibits the federal government from negotiating drug prices or
establishing a list of preferred drugs. Rep. Nancy Pelosi (D-Calif.), who
is expected to become House speaker, has said her party will take up
legislation that would repeal the ban on negotiations within the first 100
hours of assuming the majority in the House. Leavitt said the Bush
administration opposes that change and does not intend to compromise on
the issue. "In politics, most specific issues like this are a disguise for
a larger difference," Leavitt said, adding, "Government negotiation of
drug prices does not work unless you have a program completely run by the
government. Democrats say they want the government to negotiate prices.
What they really want is government-run health care." Leavitt said
negotiations would destroy the structure of the drug benefit, which relies
on competition between private drug plans. "I don't believe I can do a
better job than an efficient market," he said, adding, "We are seeing
large-scale negotiations with drug manufacturers, but they are conducted
by private drug plans, not by the government. A robust marketplace with a
lot of competitors has driven down prices. It's the magic of the market.
To assume that the government, in our genius, could improve on this belies
the reality of a complex task."
Democrats' Plan
According to the Times,
"Democrats have not specified exactly how Medicare would negotiate with
drug companies." Sen. Dick Durbin (D-Ill.) has introduced a bill that
would require the HHS secretary to offer and operate at least one Medicare
drug plan, in addition to the current private plans. The bill also would
require the secretary to negotiate prices with companies that manufacture
drugs covered by the government plan. Pelosi is cosponsoring a similar
bill in the House. All eight Democrats newly elected to the Senate have
said Medicare should be allowed to negotiate with pharmaceutical
companies.
Challenges
Drug companies and some economists have raised
concerns that the government might insist that its own Medicare drug plan
receives the "best price" offered to any private plan. To negotiate
further discounts, the government drug plan likely would have to establish
its own formulary, the Times reports. James Lang -- former
president of Anthem Prescription Management, which administers drug
benefits for about five million individuals -- said, "For this to work,
the government would have to take over price negotiations. It would have
to take over formularies. You can't do one without the other." Lang added,
"Drug manufacturers won't give up something for nothing. They will want a
preferred position on the Medicare formulary -- some way to increase the
market share for their products." However, Durbin said, "This is just good
old-fashioned free market economics. If one buys in bulk, the price goes
down." Another potential challenge to the Democrats' plan is that some
lawmakers, including some Democrats, might seek to hold hearings, which
could delay the process of passing legislation. Current federal law
requires drug companies to provide discounts for most brand-name
prescription drugs covered by Medicaid and for the Department of Veterans Affairs
drug program, which negotiates prices. Leavitt said the VA program is not
a good model for Medicare (Pear, New York Times, 11/13).
Editorial, Opinion Pieces
Two newspapers recently published
an editorial and two opinion pieces on the Democrats' proposal to allow
Medicare to negotiate drug prices.
- USA Today: Democrats should adopt a
"go-slow approach" to overhauling the Medicare drug benefit, a USA
Today editorial states. The editorial notes that Medicare
beneficiaries "account for half of all drug prescriptions," adding that
with "that kind of clout, government might try to dictate prices, not
just negotiate them." In addition, the editorial states, lower drug
prices "create less incentive for research." The editorial says that
aides to Rep. Pete Stark (D-Calif.) "couldn't provide any details on the
[Democrats'] proposal -- such as whether a government-run program would
compete with the private plans that have already enrolled about 30
million seniors, or whether it would replace them altogether." According
to the editorial, the lack of clarity "suggests that the Democrats'
proposal was more of a campaign pander than a fully baked plan." The
editorial concludes, "The public would be best served if the new
Congress conducts in-depth oversight to gather the facts, rather than
rushing through legislation within 100 hours to fix something that isn't
necessarily broken" (USA Today, 11/13).
- Stark, USA Today: "There is no reason to wait" to
enact changes to the Medicare drug benefit, Stark, the most senior
Democrat on the House Ways and Means Subcommittee on Health, writes in a USA
Today opinion piece. According to Stark, "quick congressional
action might save a life" for a beneficiary who has reached the
so-called "doughnut hole" coverage gap and cannot afford to pay out of
pocket for medications. He adds, "I believe we must start work
immediately to improve this incomprehensibly complicated plan, which
overpays and deregulates private plans to the detriment of the
beneficiaries and taxpayers." According to Stark, drug plan premiums
"are lower than expected, not from market competition, but from massive
Medicare subsidies to the insurance industry." He writes that a
"Medicare-run plan could offer true competition" by providing "less than
3% overhead, universal coverage and lower prices." In addition, Stark
notes that former HHS Secretary Tommy Thompson "took just over a month
to negotiate a 50% reduction in the price of Cipro" after the anthrax
attacks several years ago. Stark adds, "There is no reason that Medicare
cannot do the same," concluding, "If not now, when?" (Stark, USA
Today, 11/13).
- Alain Enthoven/Kyna Fong, Wall Street
Journal: "There are several good reasons that government
negotiations may not decrease drug costs," Enthoven, a professor
emeritus at the Stanford University Graduate School of
Business, and Fong, a doctoral student in economics at the school,
write in a Journal opinion piece. Enthoven and Fong write,
"People often confuse market power with bargaining power," adding, "The
thinking goes, the larger the share of the market the buyer represents,
the greater the bargaining power and thus the lower the prices
negotiated." However, according to Enthoven and Fong, "[t]hat line of
reasoning fails with drugs ... because the seller is frequently a
monopolist so it cannot be threatened with replacement by a substitute.
Instead, the only threat is exclusion from the market." In addition, "a
party's bargaining power is determined simply by its ability to say no,
to walk away from the table without an agreement," they write. In
government negotiations, "there are few drugs [officials] can exclude
without facing political backlash from doctors and the Medicare
population, a very influential group of voters," according to Enthoven
and Fong. They add that negotiations also would not work because of "the
familiar economic argument that the market-determined price is the only
fair price. How can the government determine what price is 'fair,' what
price appropriately reimburses pharmaceutical companies for all their
research and development efforts?" (Enthoven/Fong, Wall Street
Journal, 11/13).
Broadcast Coverage
- NPR's
"Weekend Edition Sunday" included an interview with Rep.
George Miller (D-Calif.) about Democrats' policy initiatives, including
the issue of Medicare negotiating prescription drug prices (Seabrook,
"Weekend Edition Sunday," NPR, 11/12). Audio of the segment is available
online.
- NPR's
"Morning Edition" on Monday reported on the Nov. 15 start
of the open enrollment season for the Medicare prescription drug benefit
and beneficiaries' experiences with the coverage gap. The segment
includes comments from acting CMS
Administrator Leslie Norwalk; Peter Sikora, an outreach coordinator for
Consumers Union
and co-author of a recent study comparing retail prices with the prices
Medicare beneficiaries would pay in the coverage gap; and two Medicare
beneficiaries (Silberner, "Morning Edition," NPR, 11/13). Audio of the
segment is available online.