The bill that House Democrats unveiled Friday to lower drug prices for the elderly contains a provision that could make it difficult -- or maybe even impossible -- to achieve its goal, some critics said.
The legislation would direct the federal government to use its huge market power to bargain for lower prices with drug manufacturers on behalf of some 23 million seniors enrolled in the Medicare prescription program.
But a provision in the bill would explicitly prohibit the government from creating a list of approved drugs, known as a formulary -- thus taking away a powerful lever commonly used in such pricing negotiations. Fear of not being included on such a list of approved drugs is one of the principal reasons manufacturers agree to lower prices.
“If you don’t have the power to bump a drug off the formulary, you have no negotiating clout,” said Robert Laszewski, a health policy consultant to insurers and other healthcare companies. “Any good capitalist will tell you that you can’t negotiate with somebody unless there is the expectation that you may not purchase their product.”
Under the Medicare prescription system, benefits are provided by private insurance companies, which rely on lists of approved drugs to negotiate price cuts. Premiums that the elderly pay to the private companies are heavily subsidized by the government.
The program was designed by Republicans and passed in 2003 over bitter opposition from most Democrats, in part because it prohibited the government from negotiating price cuts. Freeing the government’s hands was high on the list of actions Democrats had vowed to take when they gained control of Congress.
It’s unclear how the apparent concession to industry will affect the political fortunes of the bill. It may help to blunt some arguments against it from critics who say that the government would be dictating prices and therefore reducing access to medicines. However, the concession seems unlikely to win over the drug industry.
“This is a trade-off,” said a House Democratic leadership aide, who could not be identified because he is not authorized to talk to the press. “We felt we couldn’t go as far as Veterans Affairs does, where they actually take drugs off the formulary.”
The VA is known for driving tough deals on drug prices, but it covers many fewer medications than the typical Medicare plan.
AARP, one of the main groups supporting the Democratic bill, acknowledged Friday that the measure would bar the use of a potent bargaining tactic. “It takes one tool away, but that’s not the whole story here,” said David Certner, federal affairs director for the influential seniors group.
The government could use other approaches -- such as higher co-pays for drugs from companies that refuse to offer discounts -- to achieve much the same effect, he said. AARP is launching an advertising campaign in support of the bill.
“Arguing that the only tool you have is to say ‘We’re going to drop you off the list’ is not correct,” added Certner.
Another bill supporter defended the concession. “If that provision wasn’t in there, the drug companies would probably be going nuts,” added Ron Pollack, executive director of Families USA, a liberal group that advocates for healthcare overhaul. “It makes it politically palatable without harming the intent of giving the [administration] the obligation to bargain.”
The House is scheduled to vote Friday on the legislation, whose prospects are unclear. The Senate is expected to move more slowly and draft its own legislation. Sen. Max Baucus (D-Mont.), who leads the committee that would write the bill, has opposed allowing the government to negotiate drug prices.
If a bill emerges from Congress, President Bush might well veto it. Most Republicans consider government price controls anathema, and their party has also received strong support from the drug industry, which channeled most of its campaign contributions to GOP candidates in November’s congressional elections.
Business groups were unimpressed with Democrats’ no-formulary provision. “I’m not convinced it leads anywhere,” said R. Bruce Josten, a top lobbyist for the U.S. Chamber of Commerce, which has set defeat of the bill as one of its main legislative goals.
The bill would still put the government “in a godlike position on pricing,” he said.
The House bill would require the Health and Human Services Department to negotiate prices on behalf of the Medicare program, and report to Congress on its progress. Individual Medicare plans would be free to bargain for deeper discounts, and could restrict the number of drugs they offer.