April 13, 2007

Congress Should Reject "Direct Government Price Negotiation" Under Medicare

The U.S. Senate will soon move legislation for the government to "negotiate" Medicare drug prices directly. But this move would be a huge mistake.

• While this may sound appealing on first blush, a deeper look at the facts shows this idea should be rejected.  At best, this would not improve an already strong Medicare drug benefit. At worst, it could do real harm to senior beneficiaries.
   
• The House already passed legislation to open up Medicare's drug benefit to federal involvement in pricing.
   
• The full Senate could act very soon. A Senate committee reported out a bill this week.

What is being sold as "price negotiation" could actually amount to government price controls.

• If the government can negotiate prescription drug prices in Medicare, it will result "in cost-centric rather than patient-centric medicine."  Merrill Matthews of the Institute for Policy Innovation and Peter Pitts of the Center for Medicine in the Public Interest recently exposed the dire consequences in an op-ed in the San Jose Mercury News.
   
• "It's a well-understood principle in economics:  Price controls in competitive markets lead to shortages and rationing, as well as a distortion of prices for related products and service.  And in patent-protected, research-intensive industries, price controls wreak havoc on research and development."
   
• The consequences of the government controlling prices are very serious.  With decreasing Medicare payments to doctors, more and more doctors have stopped seeing Medicare patients.

What's baffling is why Congress would want to mess around with a program that's working and popular with seniors.

• Part D premiums average $24 a month. That better than a third below projections.
   
• Today, seniors have lots of choices of drug insurance plans. With many options, they also have access to many pharmaceutical products on the market.
   
• Surveys have found 84 percent of seniors had no trouble enrolling in a Part D plan.  Some 85 percent had no problems using it. "And 65 percent of those in the plan say they would recommend that other seniors enroll; just 8 percent said they would not."
   
• Matthews and Pitts wrote: "If anything, Congress should be asking how to bring more of the rampant private-sector competition in the prescription drug benefit to the rest of the Medicare program."

In the Veterans Affairs health system, a government pricing approach has led to fewer drugs to choose from.  Many veterans opt for Medicare drug coverage because the VA program doesn't provide them the medications they need. As Matthews and Pitts put it, "Competition, by contrast, leads to higher quality, increased research and development, more choices and lower prices."  Like they say, if it ain't broke, don't fix it.  And Medicare Part D is fine, thank you.