Let Medicare negotiate drug prices

By John Brautigam, Special to the BDN
Posted March 26, 2013, at 12:21 p.m.

On March 1, $85 billion in federal budget cuts began taking effect in Maine and around the country. So far these cuts, known as sequestration, have threatened to furlough public and private employees, freeze contracts, curtail public safety and military readiness, and eliminate benefits from programs such as Head Start and employment assistance.

But it’s never too late for Congress to save money in ways that would do no harm to our people or our economy.

Congress could start by taking a look at the role prescription drug manufacturers play in serving the 35 million Americans with Medicare drug benefits.

Since the 2006 launch of Medicare Part D, a voluntary program that adds drug coverage to original Medicare coverage, those companies have enjoyed huge success from this new market sector, paid for by you and me. But in 2003 Congress prohibited Medicare from negotiating drug prices. So unlike comparable programs, this huge market has never been subjected to hard bargaining.

Consequently, Medicare pays more for pharmaceuticals than any large purchaser. It’s time to change that. Congress should use Medicare’s market power to achieve price concessions that will help make the Medicare drug benefit more affordable for the taxpayer.

How much taxpayer money could be saved? Negotiating drug prices in Medicare could save up to $50 billion year after year without compromising care, according to economist Dean Baker. That equates to almost 60 percent of the entire sequester now in place.

So how could Medicare start achieving those savings? Medicare could actually learn a lot from the world’s large retailers. Many are known for their ruthless negotiations with suppliers. These retailers conduct intense and highly effective bargaining sessions. Considering the market clout of these giant chains, the negotiations are often one-sided, and the manufacturer takes whatever deal it can get.

Medicare could easily apply that approach to negotiations with drug manufacturers. Many agencies already demonstrate how this can save money. Medicaid, the U.S. Department of Veterans Affairs, the Canadian government and even the purchasing agencies of smaller countries negotiate prices and save millions of taxpayer dollars.

The VA system proves that hard negotiations work. The VA provides excellent care while paying 40 percent less than Medicare Part D plans for drugs. Every VA patient is still guaranteed the care he or she needs.

The federal government could be a hard-nosed negotiator, wielding its market clout with precision. But its hands are tied because of the 2003 law.

Why did Congress prohibit Medicare from doing what any other purchaser would do? Part of the answer lies in the pharmaceutical manufacturers’ army of lobbyists and millions in campaign contributions. Opensecrets.org reports that the industry has given $253 million to influence federal races over the last two decades.

Critics also argue that Medicare has little clout because it can’t threaten to keep manufacturers’ drugs away from vulnerable seniors. That is the unfounded perception the industry creates, but in fact competitive options exist for the great majority of drug categories. Medicare could use its leverage without harming patients in the least, just as other purchasers do.

Here in Maine, policymakers have worked hard to stretch scarce taxpayer funds and protect safety-net programs by negotiating prices for prescription drugs. From 2000 to 2004, I served as assistant attorney general, defending those policies and helping the Department of Health and Human Services provide a cost-effective drug benefit without diminishing quality of care. Maine leaders have shown the political will to demand a better deal from this industry.

Now Congress needs to follow Maine and allow Medicare to negotiate prices. This is just one common-sense way to stretch federal taxpayer dollars in a responsible way while still ensuring that all Medicare beneficiaries receive the care they deserve.

Applying this approach in all federal programs would greatly reduce the impact of the sequester.

Whether you care most about protecting vital programs now on the chopping block or reducing unnecessary spending, the savings from negotiating the Medicare drug benefit should appeal to everyone.

U.S. Rep. Chellie Pingree, D-Maine, has been a leader on reducing drug costs for more than a decade. Rep. Mike Michaud, D-Maine, has also sponsored important legislation on this issue, and independent Sen. Angus King has now taken up the cause.

Let’s hope all of Congress finds the political will to stand up for taxpayers and do the sensible thing. Congress should let Medicare do what any business in the private sector would do — negotiate drug prices.

John Brautigam was House chairman of the Legislature’s Insurance and Financial Services Committee from 2006 to 2008.

http://bangordailynews.com/2013/03/26/opinion/contributors/let-medicare-negotiate-drug-prices/ printed on December 26, 2014