The Revival Of A Bad Idea

There is a great deal to analyze in the more than 1,900 pages that make up the proposed health reform legislation unveiled by House leaders this week, and we’ll be discussing different components of the bill in this space in the days ahead.  There’s at least one provision in the bill, though, that has already been discussed at great length and doesn’t warrant revisiting.

The House legislation would change the Medicare Part D prescription drug program to have the Department of Health and Human Services, rather than private companies, negotiate prices for pharmaceuticals used in the program.  This is an issue that was furiously debated during and in the immediate aftermath of congressional passage of the Medicare Modernization Act, which created the Part D program.  Let’s review why government “negotiation” of drug prices is a bad idea.

•      The Congressional Budget Office issued a letter stating that the federal government would not achieve greater savings than private negotiations, which would have strong incentives to keep costs under control.

•      The proof is in the results.  In 2004, the Medicare Board of Trustees estimated that the Medicare Part D program would cost taxpayers between $77 billion and $131 billion in 2008.  In actuality, the program that was built around consumer choice and private sector competition cost far less — $49 billion.  Premiums for beneficiaries have also been lower than anticipated.

•      The government does not “negotiate” prices.  Advocates of changing the Part D program like to cite the Veterans Administration as an example of what they would like to achieve.  The below-market prices for drugs in the VA are established by law, not negotiated, and they also involve formularies that restrict beneficiaries’ choice of medications.

The goal of health reform is to achieve greater cost savings and higher quality of care.  Getting the federal government more heavily involved in the already-successful and popular Medicare Part D program doesn’t accomplish either objective.

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