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Medicare Benefit Appears to Slow Spending Growth on Drugs

By Christopher Lee
Washington Post Staff Writer
Wednesday, February 21, 2007

Federal number crunchers said yesterday that the new Medicare drug benefit appears to be slowing the growth in national spending on prescription medicines because the drug plans are negotiating lower prices with drug companies.

But the analysts also forecasted that overall health-care spending would continue to rise and would account for nearly 20 percent of the economy -- or more than $4 trillion a year -- by 2016. In contrast, health-care spending was about $2.1 trillion in 2006, accounting for about 16 percent of the economy. In 1985, it was just over 10 percent.

The findings provide new fuel for the debate about whether Medicare could get better drug prices if the government negotiated with pharmaceutical companies. Many Democrats in Congress say it would, and the House has already passed legislation requiring the government to use its negotiating muscle. President Bush maintains that the current system achieves the best prices, and he has threatened a veto.

The figures are being published today by actuaries and economists at the Centers for Medicare and Medicaid Services (CMS) in the journal Health Affairs. The figures cited in the study for 2006 are forecasts as well because data are not available yet, federal officials said.

Karen Davis, president of the Commonwealth Fund, a nonprofit research institution, said the projections show that the United States still has a serious problem with rising costs despite a slowdown in health-care spending growth in recent years.

"The cost problem isn't solved," Davis said. "In the 1990s we thought managed care was the solution. In the 2000s we thought consumer-driven health care and higher deductibles for patients was the solution. Now, when you look at these numbers, you realize we've got to get serious about transforming the health-care system."

Analysts said they expect to see that spending on prescription drugs rose more slowly in 2006 because of the Medicare Part D drug benefit that began last year. In the program, private insurers negotiate prices with drug companies as they compete to attract Medicare beneficiaries.

That has helped hold down prices even as more seniors are able to get drugs, John A. Poisal of the CMS said in a briefing. National spending on prescription drugs was expected to rise to $214 billion in 2006, from $201 billion in 2005. But that increase is 0.4 percentage points less than it would have been without the new drug benefit, he said.

Several national polls have shown that a majority of the public believes government negotiations would hold down drug costs even more. A survey of 1,000 adults released yesterday by AARP, for instance, found that 87 percent of respondents -- including majorities of Democrats, Republicans and independents -- supported allowing the government to use its bargaining power.

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