Experts Fault House Bill On Medicare Drug Prices

By Christopher Lee
Washington Post Staff Writer
Thursday, January 11, 2007

Democrats are fond of citing the Department of Veterans Affairs as evidence that Medicare officials could squeeze lower prices out of drugmakers if the government merely used its negotiating clout. But that comparison ignores important differences between the two systems, experts say.

Unlike Medicare, VA by law receives an automatic 24 percent discount from the average price that wholesalers pay. Its prices are also low because VA, which prescribes medications for 4.4 million veterans annually, has a relatively narrow formulary, or list of approved drugs. The agency secures big discounts from the manufacturers of a few drugs in each class by promising not to offer competing drugs. The Centers for Medicare and Medicaid Services (CMS) is prohibited by law from adopting such a list for the year-old Medicare drug benefit, in part because seniors enrolled in what is known as Part D want to have a wide range of drug choices.

The legislation that House Democrats hope to pass tomorrow to require the Bush administration to negotiate drug prices for Medicare would neither permit a formulary nor require an automatic discount. It would simply require the secretary of health and human services to pursue negotiations and report back to Congress in six months.

That is part of the reason that many experts do not expect the measure to deliver significant savings even if it overcomes opposition in Congress and escapes a possible presidential veto.

In fact, the nonpartisan Congressional Budget Office said yesterday that the House bill would have a "negligible effect" on federal Medicare spending because without a formulary the HHS secretary probably could not obtain better drug prices than those negotiated by the many private insurers who offer Medicare drug plans.

"The federal government can get lower prices, but only if it's willing to exclude a certain number of drugs from the formulary," said Robert Laszewski, a nonpartisan health policy consultant in Washington. "And that's a huge political leap that I would be very surprised if this Congress took. I don't think they are going to give CMS any teeth."

"The VA is really a different animal than Medicare Part D," said Robert B. Helms of the American Enterprise Institute, who was an assistant secretary of health and human services in the Reagan administration.

But Democrats and their allies say that the gulf between drug prices under the VA system and those under Medicare is too large to ignore, and that requiring the government to negotiate prices for Medicare would help narrow the gap significantly.

On average, prices are 58 percent higher in Medicare than in the VA system for the 20 drugs most commonly prescribed for seniors, according to a study released Tuesday by the nonprofit advocacy group Families USA. The lowest price for a year's supply of 20-milligram pills of the cholesterol-lowering drug Lipitor, for instance, was $1,120 in Medicare and $782 in the VA system, the report said.

"These high prices are devastating seniors," said Ron Pollack, the group's executive director.

Rep. Frank Pallone Jr. (D-N.J.), chairman of the House Energy and Commerce subcommittee on health, called eliminating the current prohibition on government negotiations a "no-brainer."

"It makes absolutely no sense to say that the administration should not be able to negotiate prices for all these seniors," Pallone said. "There's no way it's not going to save a significant amount of money."

Pallone said Medicare could obtain prices similar to the VA system's even without a formulary. "I have every reason to believe that there is enough persuasion power, with different things that could be implemented by the secretary, that could get down to those levels," he said. He added that Democrats will consider further changes down the road.

Energy and Commerce Committee Chairman John D. Dingell (D-Mich.), lead sponsor of the House bill, discounted the importance of the CBO analysis. "Common sense tells you that negotiating with the purchasing power of 43 million Medicare beneficiaries behind you would result in lower drug prices," he said.

Critics of the VA comparison note that some of VA's costs are buried in overhead. The department employs the doctors and nurses who write the prescriptions, and it operates the mostly mail-order pharmacies through which 76 percent of veterans' prescriptions are distributed. Medicare does not have that kind of infrastructure, and seniors have demonstrated a preference for retail pharmacies, CMS officials say.

CMS officials also note that about a quarter of the 3.8 million Medicare beneficiaries who get VA health-care benefits are also enrolled in Part D, in which the choice of drugs is broader.

"It's apples to oranges," former CMS administrator Mark B. McClellan said of the comparison. "The VA is a closed health-care system relying on mail order and a tighter formulary than Medicare beneficiaries have shown they prefer."

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