The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Why is FOX Business News Pushing Price Controls?

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 was the headline on the FOX Business News April 27 article that captured my attention.  It said, “More Government Waste Found at Medicare.”  I thought, well, what else is new, it’s pretty much a government-run program where waste and fraud is rampant.  The Department of Health and Human Services (HHS) estimated it was about $50 billion in 2013, about $5 billion higher than 2012.

But as I continued to read the article, I became incredulous and thought to myself, “is FOX Business News pushing for government price controls to cut drug spending?”  Sure enough, that seems to be the author’s intent and is quite disturbing since price controls are one of the most anti-free market and disruptive policies to the vigorous interaction of supply and demand ever conceived in history.  They lead to rationing and end up hurting consumers.

The FOX Business commentary addressed an April 2015 report released by the HHS Office of Inspector General (OIG) entitled, “Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin.”  The OIG found that Medicaid rebates were three times higher than Part D rebates and asked that Congress and the Center for Medicare and Medicaid Services (CMS) “explore the costs and benefits of obtaining additional rebates under Part D.”

The Patient Protection and Affordable Care Act, better known as the Affordable Care Act (ACA) or ObamaCare, had mandated that the OIG compare prices, including rebates, for 200 selected drugs under Medicare Part D to pricing for the same drugs under Medicaid.  The OIG’s first report was released in August 2011 and a member of Congress, who was not named, asked for an update.  A little investigative work uncovered the fact that Sen. Bill Nelson (D-Fla.) asked for the report and, in response, just happened to have a bill ready to go that would institute price controls in Medicare Part D.  Sen. Nelson, whose average vote rating with the Council of Citizens Against Government Waste (CCAGW) is 17 percent (which places him firmly in the “Hostile to Taxpayers” category), supports a big-government agenda.

The author of the FOX article states, the “[b]lame is placed on Congress for disparities in the law it writes on coverage by the federal, taxpayer-backed healthcare programs.  A federal law restricts Medicare from putting in place a specific rebate structure for its Medicare Part D drugs.”

Well, duh!  I suppose the government could mandate that there be a 100 percent rebate for every drug sold in the Medicaid program.  And I guess they could also demand that all the drugs be given “free” to Medicare beneficiaries, too!  That will seemingly “save” a lot of money for taxpayers but, in reality, it will not.  Healthcare is not free; somebody has to pay for it.  Those costs will be offloaded onto those of us who receive our pharmaceutical coverage through private insurance plans and pharmaceutical companies will also have to cut their budgets.  That means many promising drugs that would have fought cancer or other chronic diseases will not get researched and developed. The U.S. is the world leader in pharmaceutical research and a lot of that is due to the nation’s wise resistance to instituting price controls.

The FOX author continues, asking “what is exactly going on here?  Let’s go to the bureaucratic red tape Congress and federal overseers put in place for Medicare.  The inspector general says: ‘The law establishing the Part D program expressly prohibits the Secretary of Health and Human Services (Secretary) from interfering in the negotiations between the relevant Part D parties or instituting a price structure for the reimbursement of covered Part D drugs.’”

That’s true, and it is because of the “non-interference” clause that Congress prudently chose to insert into the Medicare Part D law.  Those “relevant Part D parties” that are negotiating without government interference are pharmaceutical companies, pharmaceutical benefit managers (PBMs), and pharmacists.  And negotiate they do - vigorously.  In fact, former-Congressional Budget Office (CBO) Director Douglas Holtz-Eakin pointed out on the 10-year anniversary of Medicare Part D that it is “one of the few government programs that has actually cost far less than projected.”  In 2004, CBO predicted that Medicare Part D would cost $123 billion in 2014.  What was Part D’s actual cost? It was $55 billion, almost 50 percent less.  Can you name a government program that has cost less than predicted?  In fact, Medicare Part D has often been discussed as a model for many other entitlement programs.

Ironically, the Medicaid program, which FOX Business News seems to be pushing as a pricing model, is a government-run program for low income families and individuals that is jointly funded by the state and federal governments.  Almost without exception, government programs end up costing far more than predicted and Medicaid is definitely no exception.

For example, Medicaid’s Disproportionate Share Hospital payments were estimated by Congress in 1987 to cost $1 billion by 1992.  Its actual costs were about $17 billion in 1992.  Medicaid remains the largest portion of all states’ budgets, consuming on average 26 percent according to the National Association of State Budget Officers.  That will only grow with Medicaid expansion under ObamaCare.

Medicaid is riddled with waste, fraud, and abuse to a tune of $19.2 billion or approximately 7 percent of total outlays according to 2012 data from the HHS.  For patients, being on Medicaid does not guarantee timely access to healthcare or that they will receive quality healthcare.  Only 46 percent of physicians see Medicaid patients, down 10 percent from four years ago.  Many doctors, especially specialists, do not accept Medicaid patients because they lose money if they do, plus dealing with the CMS bureaucracy is costly and frustrating.

Let’s be clear here.  We are discussing two fundamentally different rebate programs.  Rebates in Medicaid are based on a statutory formula and pharmaceutical companies must provide a 23.1 percent rebate to state Medicaid agencies and the federal government to participate in the program.  It is nothing more than a tax.

In Medicare Part D, rebates are negotiated between the respective private entities in the program.  Drug plan sponsors, or their contractors, negotiate rebates with pharmaceutical manufacturers as part of their overall contract terms. The rebates are based on volume and price, and are driven by market forces.

For years, big government fans have been pushing government-run healthcare.  After all the problems with the Veterans Administration, ObamaCare’s over-zealous regulatory mandates on the private healthcare market that has driven up costs, and Medicare and Medicaid threatening to bankrupt federal and state budgets, it is surprising to hear such a misguided prescription from an editor at FOX Business News.

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