TOPICS > Politics

House Passes Bill Forcing Medicare to Negotiate Drug Prices

January 12, 2007 at 4:33 PM EDT

KWAME HOLMAN: The Medicare prescription drug program signed into law in 2003 includes a provision barring the federal government from negotiating with pharmaceutical companies for lower drug prices.

During congressional debate on that measure, House Democrats railed against that restriction, but they fell one vote short of defeating the bill.

CLERK OF THE HOUSE: The bill is passed without objection, and the motion to reconsider is laid upon the table.

KWAME HOLMAN: Today, California Democrat Anna Eshoo said the American public, too, realized that the Republicans were wrong.

REP. ANNA ESHOO (D), California: They saw through it, and we are here today to correct that provision.

KWAME HOLMAN: Now in control of Congress, Democrats have made rewriting the drug negotiation language a top legislative priority. Their bill would require the secretary of health and human services to negotiate with drug companies on behalf of the 23 million beneficiaries enrolled in Medicare drug plans.

REP. CLIFF STEARNS (R), Florida: Why would you want to change something that’s working so fabulously?

KWAME HOLMAN: But like three years ago, Republicans adamantly opposed the idea. They argued the prescription drug program Republicans pushed through has lowered costs and that it now enjoys the support of most of the nation’s seniors.

Texas’ Joe Barton helped draft the original bill, which provided seniors with $30 billion in drug coverage last year.

REP. JOE BARTON (R), Texas: It is working. As they say in many parts of our country, if it ain’t broke, don’t fix it.

KWAME HOLMAN: And President Bush agrees. In fact, he’s threatened to veto the Democrats’ bill if it ever gets to his desk.

Republicans long have maintained that drug prices should be negotiated in the competitive marketplace, not by the government. Mike Conaway of Texas.

REP. MIKE CONAWAY (R), Texas: For my money, I will trust the private enterprise employee who works for that prescription drug plan, who is negotiating with the drug companies to get the lowest price, in order to be able to lower premiums to the Medicare beneficiary that is going to be paying those premiums.

KWAME HOLMAN: But Democrats pointed out that the Department of Veterans Affairs consistently negotiates lower drug prices than Medicare for its 4 million members. And California’s Henry Waxman argued the free market approach clearly has not worked.

REP. HENRY WAXMAN (D), California: There’s no market there, but it’s not working. People can go to Canada right now and get a lower price for their drugs than they can in the Medicare drug plan as it exists today. People can go to Costco and get a better price. They can search around and get a better price, but when government negotiates, we get the best price.

KWAME HOLMAN: In today’s vote on the drug negotiation ban, Democrats won with the support of two dozen Republicans, but still by less than the two- thirds majority required to override a presidential veto.

The measure now goes to the Senate where support for overturning the restriction on government-negotiated drug prices is uncertain.

The government as a negotiator

MARGARET WARNER: And for more on this, we're joined by Ron Pollack, executive director of Families USA, a consumer health advocacy group. And Gail Wilensky, a former administrator of Medicare under the first President Bush, she's now a senior fellow at Project Hope, a foundation for international health education.

Welcome to you both.

Ron Pollack, you heard Congressman Barton say, if it ain't broke, don't fix it. Why should the government get into negotiating drug prices when the insurance companies are already doing that?

RON POLLACK, Families USA: Well, the problem is the insurance companies are getting lousy prices. And the pharmaceutical companies never wanted the government to bargain, because these insurance companies don't have the bargaining clout that Medicare does.

And if you take a look at what the V.A. gets, the V.A. does bargaining, and we looked at the prices for all of the top drugs prescribed for seniors. And for every one of those drugs, the V.A. gets a much better price. And, mind you, the median price difference is an astounding 58 percent.

I could give you examples. For example, Plavix, which is the most popular drug prescribed for seniors -- it's used to prevent strokes -- the price that the V.A. gets for an annual supply is less than $1,000. The price that the lowest plan that Medicare gets is over $1,300. It's 34 percent higher.

One other drug, Fosamax, third-most-popular drug for seniors -- it's used for osteoporosis -- the V.A. for an annual supply gets it for $250. The lowest price of any of these plans in Medicare is more than three times as high.

So this is not good for seniors, who have to pay more out of pocket, and it's horrible for the taxpayer who actually foots the bill for three-quarters of the program.

MARGARET WARNER: All right, Gail Wilensky, let me turn it around. It would look like a no-brainer. Why not use the huge bulk purchasing power of the government, of Medicare, to bargain with these drug companies?

GAIL WILENSKY, International Health Education: Three quick points. The first is spending on Part D, the prescription drugs, is way down over what had been estimated at the time the program was started. Premiums have been dropping, the department has just said 10 percent lower yet than what we thought last summer. You're beginning to see really strong effects of what private sector negotiating can do.

The second point. The main way that the Veterans Administration gets such low prices, it has a very restrictive list of what's covered. So if what you're using is on that list, you get a chance to have a low price.

Lipitor, most widely prescribed drug, it's not on there. Nexium, very common, the purple pill, it's not on there. It's OK for veterans, a million of whom are also on Part D, who happen to be Medicare eligible. Medicare becomes a safety valve. It's different if that's your only plan.

The present system vs. the new bill

MARGARET WARNER: Explain exactly how the system works simply right now. Does each insurance company that offers a Medicare prescription drug plan, say, UnitedHealthcare or Humana, negotiate independently with every single drug company over every single drug?

GAIL WILENSKY: Generally, yes, although many of them are, of course, negotiating in the private sector already with these drugs companies as part of the offerings that they make for the under 65 population. So it's not that there isn't a lot of experience in terms of bargaining.

MARGARET WARNER: So you may now have the same drug offered at different prices to Medicare beneficiaries, and certainly to the insurance companies that run the health plan?

GAIL WILENSKY: Absolutely, as exists in most other places.

MARGARET WARNER: So how would it work if the secretary of HHS was suddenly given this not only authority, but requirement? Would he be negotiating on behalf of all of the insurance companies at the same time?

RON POLLACK: Yes, the secretary would. Now, exactly how the secretary goes about doing this is going to be left to his discretion. But we know that the secretary -- when the secretary bargains for cheaper prices, that is actually very effective.

Take for example what happened after 9/11. We had the scare about anthrax, and we wanted to get Cipro. And this is a company that's in Germany. And the secretary was able to bargain to get prices lower. The same is true with flu.

There's one comment, though, that Gail said that I really have to touch upon. She would have us believe that the V.A. really restricts what kinds of drugs you get. Well, the V.A., and all of these private plans in Medicare, have a formulary. They all restrict...

MARGARET WARNER: A formulary being a list of approved drugs?

RON POLLACK: That's right. And if you really take a look at how the V.A. system works, it's much more flexible getting drugs that are not on the list than it is for any of these private plans. And so people get the worst of all words. They have a more rigid formula, or list of drugs, under Medicare, and the prices are much higher.

GAIL WILENSKY: But there's a fundamental difference: In Medicare, you don't like one formula, you get to choose another plan.

MARGARET WARNER: In other words, you can go to just another plan that offers this drug?

GAIL WILENSKY: Exactly, so that you can look at the plan to see what it covers and what the coverage is. That's the message that you've been hearing. Seniors should look to see what's on there.

With the V.A., it's a take it or leave it. That's a fundamental difference.

The notion of negotiating prices is really foreign. As you mentioned, I ran Medicare. Medicare sets the price, and physicians and hospitals can take it or leave it. Presumably, if that's the direction that we go in here, that's what the secretary will do.

But the bargaining clout comes from restrictions. That's why, when the Congressional Budget Office estimated the savings associated with the bill that was just introduced in the House, in terms of what kind of savings would happen, there was no savings if there were no formulary restrictions. That's the key.

The potential effects of the plan

MARGARET WARNER: Why did the CBO find that, in fact, there really would be no savings under this bill?

RON POLLACK: Well, I think they were saying, theoretically, bargaining might work. But, you know, the greatest proof of the pudding here...

MARGARET WARNER: Might not work.

RON POLLACK: Might not work as effectively as some of us think it would. But the greatest proof of the pudding is, take a look at what the drug companies are doing.

The drug companies are spending millions upon millions of dollars in advertising and in lobbying, because they're afraid of having Medicare bargain for cheaper prices. They know that the prices will come down if you give the secretary this authority.

MARGARET WARNER: Let me just quickly make sure I understand it. So what you're saying is -- are you acknowledging, Gail Wilensky, that, in fact, if you had a single negotiator, like the government, they might be able to get a price on a given drug lower, but only if they had the power to say, "And we won't cover"...

GAIL WILENSKY: You've got to be able to walk away. If the secretary is able to say, "We're excluding all these drugs that we don't think are absolutely necessary," Medicare is half of the market, half the drug market. Absolutely. They could get a very low price.

MARGARET WARNER: So is that really the choice? It's cost versus choice?

RON POLLACK: No, it's not. There's another thing that the secretary can do. The secretary can say, "When I get a good price from a company, I'm going to put that on a list in which somebody gets a lower co-payment. If I get a bad price, there will be a high co-payment." And so that doesn't preclude somebody from getting the drug, but it creates a very important cost incentive for the plans that actually give a good price.

MARGARET WARNER: OK, very quickly, is this ever going to become law with the president threatening to veto?

GAIL WILENSKY: I assume, if the president says he won't let it through, it doesn't have support in the House to override a veto. I'm not sure what the Senate will do, whether it will pass it at all. I think they are more sensitive to the issues that have been raised. It's a question of restricting access, and then you get a lower price. Seniors have indicated they really don't want that.

MARGARET WARNER: What's your prediction?

RON POLLACK: Well, this is good policy and good politics. If the president decides to be Dr. No, I think that's bad politics. I think this will pass.

MARGARET WARNER: All right, Ron Pollack, Gail Wilensky, thank you both.