Imminent budget negotiations in Congress may well hinge on fixing Medicare.

The program is clearly broken — it will be broke by 2024 and faces unfinanced liabilities of $30 trillion.
 

But one component of Medicare is startlingly cost effective — the Part D prescription drug program. Republican lawmakers should resist Democrats' efforts to change it.
 

According to the nonpartisan Congressional Budget Office, costs for Part D are 46 percent lower than originally predicted. That's unheard of for an entitlement program.
 

So why is anyone trying to change Part D? The White House's fiscal commission recently recommended that Part D adopt a rebate scheme similar to how Medicaid handles prescription drugs. President Obama supports this.
 

Under Medicare Part D, Medicare recipients can join a private insurance plan that covers the cost of their prescription drugs. As of last year, 27.6 million Americans were enrolled, choosing from about 30 plans in each state. Medicare Part D benefits vary based on different formularies and drug expenses, but the program is popular and effective.
 

Under Medicaid's drug benefit, state programs get rebates from drug manufacturers. The basic rebate for name brand drugs is the greater of either 23.1 percent of the average manufacturer price (AMP) of a drug or the difference between the AMP and the best price offered to any private buyer — usually the lowest price charged to nongovernmental purchasers.
 

So even if a pharmaceutical company sells at a discount to only one small customer in the private sector, this automatically forces them to offer the same deal to Medicaid's huge drug market. Consequently, “private-sector purchasers pay higher prices as a result of the best-price provision in Medicaid's rebate program,” observes the CBO.
 

Medicaid's drug rebate program is a failure. Earlier this year, Walgreens — the country's largest drugstore chain — threatened to stop filling Medicaid prescriptions in over half of its stores in Washington state because it was losing too much money.

Medicare Part D, on the other hand, was designed to encourage competition to strike deals with drug manufacturers and drive costs down. Those savings are being passed on to Medicare beneficiaries — the average monthly premium for Medicare Part D has declined nearly 6 percent in the last five years.
 

What's also worth noting is that the average drug costs more than $1 billion in research and development. Brazen government meddling in drug markets chips away at profit margins, and could significantly hamper future pharmaceutical innovation.
 

But the bottom line here is the bottom line: “Applying the Medicaid rebate rule to Medicare Part D would likely result in higher prices for consumers in the private sector,” says Yale Economist Fiona Scott Morton.
 

Lawmakers who care about keeping prescription drug prices down must leave Medicare Part D alone.