Kaiser Daily Health Policy Report

Monday, November 13, 2006

Medicare

      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.

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