The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Howard Dean is Correct

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


It is not too often that I agree with former Vermont Governor and Democratic presidential candidate Howard Dean but when it comes to the government “negotiating” drug prices in Medicare Part D, he is correct.

Inside Health Policy reported that at an event celebrating the 50th anniversary of Medicare sponsored by Dentons, a multi-national law firm, Dean said there is no need for the government to get involved in drug price negotiations for Medicare Part D.  He notes that negotiation already occurs between pharmaceutical companies and pharmacy benefit managers.  Dean clearly understands that government negotiation really is short hand for price controls that lead to fewer choices and anemic pharmaceutical research.

These kinds of discussions about regulating drug prices have come about because of increased drug spending in both the private and government-run health sectors.  In late July 2015, the Centers for Medicare and Medicaid Services (CMS) actuaries documented that Medicare Part D spending had increased in 2014 by 17.3 percent and by 23.3 percent in Medicaid.  Much of the cost increases are due to the rise of newly insured individuals enrolled in the Affordable Care Act, more often referred to as ObamaCare, as well as the growth of specialty drugs, such as for Hepatitis C.

I have written before about how Medicare Part D has been one of the few government-created programs that ended up costing less than originally predicted by the Congressional Budget Office and continues to receive high marks from beneficiaries for customer service.  CMS recently projected that the average premium for a basic Medicare Part D prescription drug plan in 2016 would remain stable at an estimated $32.50 per month.  In fact, the average monthly premium for the past five years has hovered between $30 and $32.

One of the reasons Medicare Part D has worked so well is because of the “non-interference” clause in the Medicare Modernization Act (P.L. 108-173), the law that created the benefit plan. The clause prohibits the government from interfering in the vigorous negotiations that occur between drug manufacturers, pharmacies, and prescription drug plan sponsors.

However, Medicare Part D’s success does not hinder certain members of Congress or others from calling for government price controls.  For example, Rep. Jan Schakowsky (D-IL) introduced legislation on July 28, 2015 that would establish government-run Medicare Part D plans that would permit the Secretary of Health and Human Services to negotiate drug prices and create formularies.  Ironically, while the title of the bill is the “Medicare Prescription Drug Savings and Choice Act,” the legislation would narrow choices for seniors because government bureaucrats would decide which drugs beneficiaries would have access to.  The plans would probably end up being similar to the Veterans Administration’s (VA) drug plan, which provides a smaller range of coverage of the most prescribed brand drugs in the U.S.  The VA drug plan covers 57 percent of these drugs while the most popular Part D plan covers 99 percent.

Sen. Ron Wyden (R-Ore.), the ranking Democrat on the Senate Finance Committee, has called for a value-based pay policy for drugs.  He admits doing so would be difficult and his proposal sounds eerily like what the British Health Service tries to accomplish via the National Institute for Health and Care Excellence (NICE).  The NICE is notorious for denying payment for drugs or other therapies they deem too expensive, not effective enough, or unnecessary.  Their decisions often mean British citizens do not get access to the newest and most innovative research.

Unfortunately, ObamaCare has adopted similar policy initiatives through the Independent Payment Advisory Board (IPAB), which was created to lower Medicare costs and the Patient-Centered Outcomes Research Institute (PCORI) that will do comparative effectiveness research.  Members on these boards are appointed by government officials.

While the law says IPAB cannot ration care to reduce Medicare spending, what it does do is cut payment to providers.  If doctors’ reimbursement fees do not cover the costs of seeing Medicare patients, they will simply see fewer of them, which is de facto rationing.  As for PCORI, conducting research to decide which therapies work best may sound good, especially if results are for informational purposes only.  However, in practice comparative effectiveness reseach tends to morph from informational suggestions to mandates in very short order.  The government is really in charge of PCORI; in spite of its claim as an independent, non-profit organization.  It is funded by Medicare and a tax on insurance companies.  The marketplace and doctors’ skill sets are much more efficient in deciding what is best for their patients, not bureaucrats in Washington, D.C.

Other bills have been introduced in Congress that would allow for re-importation of drugs from foreign sources.  The bills, the Personal Drug Importation Fairness Act of 2015 (H.R.2623) sponsored by Reps. Keith Ellison (D-MN) and Dana Rohrabacher (R-CA) and the Safe and Affordable Drugs from Canada Act of 2015, H.R 2228 and S. 122, sponsored by Rep. Chellie Pingree (D-ME) and Sen. John McCain (R-AZ), respectively.

Our representatives in Congress regularly disregard the fact that drug prices are lower in Europe, Canada, and elsewhere because these countries’ governments institute price controls.  The end result is they do far less pharmaceutical research than the U.S.  According to Paul Roderick Gregory, a research fellow at the Hoover Institution, 95 percent of new drugs are developed for sale in the U.S., while other countries’ citizens free ride at our expense.  Adopting a drug re-importation strategy is simply importing bad policy from other countries.  It would make more sense to have these countries contribute more financially to the drugs that are researched and developed here.

It can be dangerous to purchase drugs on-line or not through a registered pharmacy.  While the Food and Drug Administration does allow some importation of drugs for personal use in very special circumstances, the agency has long expressed anxiety about drug re-importation in general.  Many drugs sold overseas have different formulations than what a U.S. citizen may be using or, worse, the drugs could be adulterated and dangerous.  The agency states, “many drugs obtained from foreign sources that claim or appear to be the same as U.S.-approved drugs are, in fact, of unknown quality and may even be counterfeit.  There is also a possibility that drugs coming to U.S. consumers through Canada, or that claim to be from Canada, may not actually be Canadian drugs.  FDA cannot assure the authenticity, safety, or effectiveness of drugs from foreign countries.”

The answer to high drug prices is not government price controls or more regulations, but less.  History and the data shows that what works best to drive down all healthcare costs is putting the decision-making and purchasing power in the hands of consumers, which leads to more transparency, more competition, and more innovation.  Creating a true market-driven healthcare system can be done several ways such as encouraging the use of more Health Savings Accounts (HSA) and utilizing tax credits (or a standard tax deduction) that can be used by consumers to purchase the kind of health insurance and pharmaceuticals they want.  Members of Congress should be focused on creating an atmosphere for these solutions, rather than trying to have the government micro-manage healthcare.

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