The Slippery Slope of Price Controls

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  • 02/15/2013

June 2003, "I happen to be a proponent of a single-payer universal health care program."  -- Barack Obama

Calling for the revocation of the Kennedy/Daschle Non-Interference Clause is the Drug Importation canard of the Obama Administration. – a faux policy that pretends to offer an easy solution to a complex problem. Populism may "sell" but it doesn't solve – and it may be a stalking horse for something more ominous.

During Tuesday’s State of the Union the President said, “We’ll reduce taxpayer subsidies to prescription drug companies.”

And on Thursday (and right on cue), a “coalition of liberal groups” (according to an article in Politico), launched a campaign to allow Uncle Sam to negotiate Medicare drug prices, claiming it will “save billions of federal dollars every year.”

Senator Amy Klobuchar (D/MN) recently introduced a bill (S. 117) to empower the Health and Human Services Department to negotiate for lower drug prices. "This is a matter of fairness for our seniors, who deserve affordable prices for their prescription drugs, and it is a matter of fairness for America's taxpayers, who deserve less waste in our system," she said.

Senator Klobuchar should pay closer attention to the numbers.

The non-partisan Congressional Budget Office (CBO) has found that Part D plans “have secured rebates somewhat larger than the average rebates observed in commercial health plans.”

And the Medicare Trustees report that “many brand-name prescription drugs carry substantial rebates, often as much as 20-30 percent and that on average, across all program spending, rebate levels have increased in each year of the program.

Is the argument that Uncle Sam could do better?

According to the CBO (in 2004), revoking the Kennedy/Dascle Non-Interference Clause, “would have a negligible effect on federal spending because CBO estimates that substantial savings will be obtained by the private plans and that the Secretary would not be able to negotiate prices that further reduce federal spending to a significant degree. Because they will be at substantial financial risk, private plans will have strong incentives to negotiate price discounts, both to control their own costs in providing the drug benefit and to attract enrollees with low premiums and cost-sharing requirements.”

In 2007 after two years of experience with bids in the program, the CBO found that striking noninterference “would have a negligible effect on federal spending because … the Secretary would be unable to negotiate prices across the broad range of covered Part D drugs that are more favorable than those obtained by PDPs under current law.”

In 2009 after even further program experience, the CBO reiterated its previous views, stating that they, “still believe that granting the Secretary of HHS additional authority to negotiate for lower drug prices would have little, if any, effect on prices for the same reason that my predecessors have explained, which is that…private drug plans are already negotiating drug prices.”

Importantly, the CBO says that no further savings are possible unless the government restricts beneficiary access to medicines or establishes market-distorting price interventions.

In the words of USA Today (America’s vox populi) “Government price negotiation could leave people without drugs that manufacturers decide aren't sufficiently profitable under the plan … With that kind of clout, government might try to dictate prices, not just negotiate them. This could leave people without drugs that manufacturers decide aren't sufficiently profitable under the plan. The VA plan illustrates the point. It offers 1,300 drugs, compared with 4,300 available under Part D, prompting more than one-third of retired veterans to enroll in Medicare drug plans."

Is revoking the Kennedy/Daschle Non-Interference Clause the President’s next move towards what he has previously said is his preferred policy solution – a single payer system? It’s a question worth asking.


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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