If it ain't broke ...

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  • 01/17/2007
House-passed drug price bill has very little clout

By David Nicklaus

In any negotiation, the power lies with the person who's willing to walk away. That simple truth is obvious to anyone who's ever bought a car or a house, but somehow it escapes a majority of members of the House of Representatives.

When the House passed the Medicare Prescription Drug Price Negotiation Act last week, it ordered the government to lean on the big, bad pharmaceutical companies to get lower prices. But it also prohibited Medicare from establishing a formulary that would pay for some drugs and not others.

In other words, Medicare would have to ask drug companies to cut their prices, but it would have no leverage. It would have to cover all drugs, regardless of price. This is a change from current law, which bars the government from negotiating prices, but it's a change without substance.

You don't have to take my word for it. You can read a letter that the Congressional Budget Office sent to Rep. John Dingell, D-Mich. It says that the Price Negotiation Act "would have a negligible effect" and predicts that the government "would be unable to negotiate prices … more favorable than those obtained by prescription drug plans under current law."

Why would Congress ask Medicare to dicker with drug companies while banning the one tool that would really give Medicare some clout? The politicians apparently want to curry favor with elderly voters and with lobbying groups like AARP.

Senior citizens may worry about high prescription costs, but they certainly don't want any bureaucrat telling them which medications they can or cannot take.

A truly low-cost drug plan would have to look something like the one available to military veterans. The Department of Veterans Affairs formulary covers only 1,300 drugs, compared with 4,300 available in the typical Medicare Part D plan, says Peter Pitts, director of the Center for Medicine in the Public Interest. Thirty percent of veterans, he says, would like to switch to Part D, but they're not eligible because they already have VA coverage.

Part D plans are offered by private insurance companies, which have the option of using restrictive formularies. Most of them keep their coverage broad in order to attract customers, but just having the right to drop a drug — like threatening to walk away even though you really like the car — gives the insurers clout.

The Congressional Budget Office says insurance companies have "both the incentives and the tools to negotiate drug prices that the government, under the legislation, would not have."

If Congress really wants to reduce health care costs, it's looking in the wrong place. Prescription drugs account for just 11 cents of each health care dollar, compared with 32 cents spent at hospitals. By giving senior citizens easier access to the drugs that help manage chronic conditions, one could argue that Medicare Part D has kept many people out of hospitals.

Pitts, a former associate commissioner of the Food and Drug Administration, says Part D has surprised critics by becoming enormously popular with the over-65 crowd.

"The premiums are coming in below expectations, the cost to government is below expectations and the coverage is very good. That sounds to me like a program that is working," he said.

Congress, unfortunately, has never shied away from fixing things that are not broken.

Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.

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