Let the Market Do its Work

Senate Conservatives Threaten to Block Much-Needed Medicare Drug Price Negotiation Legislation

If Senate conservatives block the vote on Medicare drug negotiation, it will prevent the government from getting the best prices for recipients.

The Senate had hoped to begin debate today on much-needed legislation allowing the federal government to negotiate directly with prescription drug providers to ensure that people with Medicare coverage pay the lowest price possible for their medications. This proposal, which differs from the Medicare price-negotiation authority that passed the House in January, will also provide Medicare beneficiaries with more information on drug prices and, in the long run, the comparative effectiveness of different drug regimens.  

Conservatives in Congress and the Bush administration argue that giving the federal government the authority to negotiate directly with prescription drug companies will somehow be unfair to big pharmaceutical companies given the buying clout of the Medicare program. And Senate conservatives are so worried about the drug manufacturers that they may prevent the Senate from even debating this idea.

But getting the best price due to volume purchases is what free markets are all about.

The federal government launched the Medicare outpatient prescription drug benefit in January, 2005, and now buys medications for almost 24 million people. With this kind of buying power, the federal government should get a really good price—probably the lowest price possible—for the amount of drugs it buys.

Yet the program’s current structure prevents Medicare from obtaining the best possible prices for prescription drugs, even though high drug costs were the impetus for the benefit in the first place.

The current drug purchasing system ignores the market power and administrative efficiency that the federal government could wield as a large purchaser. It instead depends on thousands of stand-alone drug plans and health maintenance organizations to separately negotiate with each and every drug manufacturer, shattering the pricing clout that Medicare would have brought to bear on prices as the single largest prescription-drug purchaser in the United States.

We are in this situation because the current Medicare drug law prohibits Medicare from “interfering” in the price negotiations between drug-plan sponsors and drugmakers – language that prohibits Medicare from negotiating prescription drug prices itself.  In essence, current law leaves Medicare without the power to do much about high or unfair drug prices. That’s what the Senate proposal would change.

By repealing the “non-interference” clause, the Senate would also allow the Medicare program to take various steps to hold down drug prices. For example, Medicare could directly participate in the negotiations between plans and drug makers, or it could set guidelines for these negotiations. Plans could also try to obtain better drug prices than those negotiated by the Secretary through independent negotiations.

But right now, it looks like the Senate won’t have a chance to debate, much less vote on, the wisdom of removing the “non-interference” clause. Conservatives are poised to block Senate debate by uniting on a procedural vote sometime today.  If they succeed, we will lose the opportunity to take control of drug prices under the Medicare program – and conservatives won’t even have had to cast a “no” vote. The drug manufacturers will be relieved.

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