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Competition Lowers Drug Prices
Competition Lowers Drug Prices
New York Newsday
By Peter Pitts
Jan 12,2007
One hundred hours. That's not a lot of time - just 2 1/2 weeks of work for the average American. But if House Speaker Nancy Pelosi and the Democrats keep all their promises, it's plenty of time to ruin our health care.
As part of Pelosi's agenda for the first 100 hours of the new Congress, Democratic lawmakers are promising to pass legislation by today allowing Medicare to negotiate prices directly with pharmaceutical manufacturers. Their idea is to use the government's large market share - some 42 million beneficiaries - as a big chip to negotiate dramatically lower prices.
There's one problem with their plan, though. That bargaining chip isn't nearly as big as they think.
In any negotiation, the side that can walk away from the table with the least amount of pain has the upper hand. Pharmaceutical manufacturers, who often have patents giving them the sole right to market a particular drug, will have the upper hand because there are no competitors the government can approach for an alternative.
The government's negotiator will have a relatively weak position. If the negotiator walks away from the table, he or she will face a political firestorm from seniors wondering why Medicare can't get them the medicines they need.
This is exactly what has happened since the Department of Veterans Affairs started excluding newer drugs from its program to reign in costs. Whoever controls prices can control which drugs are bought.
Thus, studies have shown, a third of VA seniors prefer to switch to Part D - the government's prescription-drug program for Medicare recipients - but cannot because they would lose other benefits, says Dr. Mark McClellan, former administrator of the Center for Medicare and Medicaid Services.
If Pelosi has her way on Medicare Part D negotiations, those veterans might not have any hope for relief after all, because they won't be able to get the drugs they need under Medicare and many newer drugs won't be available under the VA program.
The House Democrats' proposed legislation, the Medicare Prescription Drug Price Negotiation Act of 2007, provides that nothing in the bill "shall be construed to authorize" the government to establish or require a particular list of drugs. This means the government's negotiator would not be able to ban any medicines because of a manufacturer's refusal to come down on the price. In effect, the negotiator would be forbidden from "walking away" from the negotiating table - the biggest source of bargaining power.
How is it that private drug plans can't do any better at negotiating lower prices with drug companies? Although drug companies might charge higher prices to one plan and lower prices to another, ultimately consumers are able to choose a plan that gives them the best coverage for the best price.
This is the genius of competitive markets: They allow individuals to decide what's best for them, rather than being forced into a one-size-fits-all government plan. This isn't obscure economic theory, either. It's been confirmed by real-world results elsewhere in the government, such as in Medicaid's drug plan.
Under a 1990 law, pharmaceutical companies must offer their wares to Medicaid at the lowest price charged to any private plan. Predictably, after that law was passed, drug companies cut back on the discounts offered to private plans.
If the government "walks away" from the table, any company can name its price. Those who believe direct negotiations will work should remember that when Hillary Rodham Clinton created a program as first lady to have the government impose prices for bulk purchases of vaccines (in part by squeezing out some buyers), it nearly killed the pediatric vaccine industry. An Institute of Medicine study found that the government's attempt to mandate prices caused shortages of vaccines and incentives for investment. In 2002, the government ended price controls on the vaccine market.
On the whole, it's good for politicians to keep their promises, but it would be much better for our health if the Democrats in Congress broke this one promise. |
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