A Secret Effort to Overhaul Part D
By Merrill Matthews, Ph.D.
In recent weeks, the nation's attention has been focused on the economy and Washington's efforts to fix it. Some lawmakers have used this opportunity to introduce legislation that would otherwise generate enormous controversy.
Most notably, a bill was introduced by Senate Majority Whip Richard Durbin (D-Ill.) and Reps. Marion Berry (D-Ark.) and Jan Schakowsky (D-Ill.) to completely overhaul Medicare Part D, the prescription drug benefit created in 2003.
Known as the Medicare Prescription Drug Savings and Choice Act of 2009, the bill would allow the federal government to "negotiate" its own prices with drug companies. The bill would also set up at least one Medicare-operated alternative to the existing private Part D plans. Although the bill's advocates are surely well-intentioned, passage of the measure would mean fewer choices, fewer drugs, and probably higher prices for America's seniors.
As currently structured, the Part D program is administered by private health insurance companies. The government pays a significant portion of the costs, but otherwise, the plans operate just like conventional insurance plans. Seniors choose from a number of competing providers, selecting the plan that best suits their particular health and financial needs.
The widespread competition has resulted in lower-than-expected costs. And a great deal of satisfaction. More than 85 percent of enrollees report they are satisfied with their coverage. Meanwhile, the cost of the program to taxpayers is almost 40 percent lower than first predicted.
When was the last time a government program came in under predictions?
Many lawmakers, though, believe that costs would be even lower if the government - rather than insurance providers - could negotiate drug prices directly with drug makers.
But the government doesn't negotiate. It dictates. Just look at the prescription drug benefit offered by the Department of Veterans Affairs (VA).
The VA "negotiates" drug prices by telling pharmaceutical manufacturers that it won't pay "more than 76 percent of the Non-Federal Average Manufacturer Price." Drug makers that are unwilling to comply with these terms aren't just excluded from the VA's drug formulary or its list of preferred drugs. They're also excluded from Medicaid and other government-run health programs.
And America's veterans end up suffering. More than 30 percent of the 300 most widely used drugs aren't on the VA formulary. Most Part D plans, by contrast, cover just about all of them.
And it's not just a problem of access to quantity, but quality. Suppose a drug maker has the best selling drug in the world for a specific condition. A competitor has a similar product but for some reason - perhaps it isn't quite as effective or has more side effects - only a few doctors choose to prescribe the second drug. Now, which drug manufacturer will be more willing to take the government's artificially low price? The company that can get its price all over the world, or the drug maker that can't seem to sell its product anywhere? Even the government's steeply discounted price is better than nothing. And that then becomes the government's "preferred" -i.e., the most "cost effective" - drug.
Government negotiations under Medicare would almost certainly have the same result.
The bill would also create one or more price-controlled, government-run alternatives to private Part D plans. While these options might initially look like a better deal, that's only because the government hides and absorbs much of the administrative costs - just as it does in the current Medicare program. But Americans are still paying, either in the form of premiums or higher taxes. And seniors would eventually be stuck with a one-size-fits-all drug plan, much like the one offered by the VA.
Medicare Part D is working much better than anyone expected - Wish we could say the same for Congress! - by providing a wide range of choices at lower-than-expected prices. The last thing the government should do is "improve" this success story with price controls that will end the program as we know it.
(Merrill Matthews is executive director of the Council for Affordable Health Insurance and a resident scholar with the Institute for Policy Innovation in Lewisville, Texas.)
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