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January 02, 2007

To negotiate or not to negotiate - That is the Medicare drug benefit question

One of the Democrats' "first 100 hours" issues seems to be repeal of the ban on Medicare negotiation of drug prices. 

That's a good thing.

The N.Y. Times reports today that acting CMS administrator Leslie Norwalk

said that under the Democrats’ proposal her agency would have to “hire hundreds of people to negotiate prices for 4,500 different drugs.” And Ms. Norwalk said the agency would be besieged by lobbyists seeking higher Medicare payments for specific drugs. That, she said, is “how Washington really works.”

I'd call that a copout.   

Remember, her colleagues in the Bush Administration misled Congress when they projected the ten-year cost of the Medicare drug benefit to be $400 billion.  (It will cost $1 trillion; that's how Washington really works.)  So she can afford to hire a couple hundred employees -- not that it should take that many -- and still come out ahead.  A one percent savings off the lowball estimate ($4 billion) dwarfs the alarmist supposed cost of administering this program (let's call it $250 million over ten years if it takes 250 $100,000-a-year employees to do the job).  If we use the current cost estimate, a 1% "shave" for Big Pharma would yield savings of $10 billion.

Yes, Virginia, there are transaction costs inherent in our inefficient health care system, and we have to make sure the savings don't land in the pockets of the benefit plan administrators, but there's no excuse for failing to use the market power of the federal government in negotiating drug prices.

Other issues on the agenda include looosening restrictions on federally-funded stem cell research.  The Times article continues:

Lawmakers are also likely to wrestle with these issues:

¶Many Democrats will try to reduce Medicare payments to managed care plans. They contend such plans are overpaid by about 10 percent. Insurers intend to fight back, with support from the Bush administration, Republican lawmakers and beneficiaries who see the plans as a way to obtain extra benefits at an affordable cost.

¶Congress faces a huge challenge in devising a new formula to pay doctors for treating Medicare patients. Under the current formula, doctors’ fees would be cut more than 4 percent a year for the next decade. Lawmakers are determined to avert such cuts, but see no easy way to pay the cost.  [See earlier HealthBlawg posts on this issue here and here.]

¶Democrats have drafted legislation to speed the approval of safe, low-cost versions of expensive biotechnology drugs, which account for a growing share of spending on pharmaceuticals.

Stay tuned.

-- David Harlow


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