Pinning Down Prescription Prices

Congressional Democrats are ready to make good on an oft-repeated campaign pledge: to give the secretary of the Department of Health and Human Services (HHS) the authority to negotiate lower prescription drug prices for Medicare beneficiaries.

House Majority Leader Nancy Pelosi promised action on Medicare within the first 100 legislative hours after the new Congress convenes this month. Senate leaders have indicated that they plan to act early in the year as well. But authorizing the HHS secretary to negotiate for Medicare is not the same as requiring him to negotiate, a difference that raises the prospect of a deadlocked Congress or a presidential veto.

The 2003 Medicare law prohibits the government from bargaining directly with drugmakers, instead allowing individual Medicare private insurers to negotiate prices with them. An estimated 22.5 million Americans are enrolled in one of nearly 2,000 private Part D plans.

Advocates argue that aggressive bargaining by the government can reduce costs, pointing to the low prices the Department of Veterans Affairs negotiates with drug companies as proof. But analysts on both sides of the issue say invoking the VA model is misleading because the VA covers far fewer drugs for far fewer beneficiaries.

AARP has supported the MEND (Medicare Enhancement for Needed Drugs) Act cosponsored by Sens. Olympia J. Snowe, R-Maine, and Ron Wyden, D-Ore., which would repeal the ban and give the HHS secretary authority to bargain for lower prices. The bill, which drew 54 supporters last year, would also allow individual Medicare plans to request the secretary's help if they felt they weren't getting a good deal on prices. A 2005 House proposal to force the government to negotiate had 133 supporters but wasn't brought up for a vote. Other proposals are expected early this year.

While public support for government bargaining power is very high—in a recent survey 90 percent of AARP members favored it—President Bush could veto any legislation that requires government negotiations. And in any event, HHS Secretary Mike Leavitt says he won't bargain even if given the authority to do so. He criticizes negotiations as "a surrogate for a much larger issue, which is really government-run health care."

The drug industry rejects the implication from critics that prices are not negotiated. "That's simply not true," says Ken Johnson of the Pharmaceutical Research and Manufacturers of America. "Negotiations are occurring between prescription drug plans—several of which already purchase medicines for tens of millions of Americans—and pharmaceutical companies," he says. "That's the marketplace in action."

Stephen Schondelmeyer, professor of pharmaceutical economics at the University of Minnesota, says that while there's no guarantee the government could negotiate better prices than the private plans, the sheer number of beneficiaries might be a powerful bargaining tool. The government could negotiate prices, he says, "and then let the private plans negotiate beyond those rebates."

Still, support for lifting the ban could stall if Congress advances an excessively strong mandate to cut costs. "That might feel good," says AARP policy director John Rother, "but there's not much chance of getting the bill passed if it's too heavy-handed."

Another possible damper: The Congressional Budget Office concluded in 2004 that switching to HHS negotiators would have "a negligible effect" on federal spending.

David Sloane, chief lobbyist for AARP, disagrees with the CBO assessment. "Allowing Medicare to use its bargaining power should, over time, lead to lower prices," he says. "It also sends the drug industry a strong message that prices are unsustainably high."

Susan Stranahan is a freelance writer in Philadelphia.

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