Direct negotiation of Medicare drug prices gains momentum

Washington -- Democratic lawmakers finally may be close to achieving their goal of giving the federal government the authority to negotiate Medicare prescription drug prices directly with pharmaceutical manufacturers, a move they have been pushing since before the launch of Part D.

The Medicare Prescription Drug Savings and Choice Act of 2009 was introduced in the House and Senate in late January. Sponsors are counting on President Obama to help them prevail after years of failed attempts at obtaining approval for similar legislation from the Bush administration.

"The prospects certainly look better," said Rep. Jan Schakowsky (D, Ill.). "After eight years of repeated attempts to privatize Medicare, we finally have a president who believes that our government has a responsibility to take care of our seniors and people with disabilities."

The bill would instruct the Health and Human Services secretary to establish at least one government-run plan and negotiate directly with drug companies to lower medication prices. That is now left to pharmaceutical benefit managers. Current law prohibits the government from becoming part of that process.

With the creation of publicly administered prescription drug plans, seniors could choose between a government-operated plan and the privately run plans that already exist. Proponents of the legislation maintain that this would create fair-market competition and lead to less costly drug choices for Medicare recipients.

The proposed change "provides a guaranteed benefit without [beneficiaries] having to worry that their premiums will drastically increase each year," said Schakowsky, who joined Rep. Marion Berry (D, Ark.) and Sen. Richard Durbin (D, Ill.) in a Jan. 27 conference call announcing the bill. Schakowsky said she expects that government involvement in the negotiating process ultimately will reduce the number of private plans and lessen confusion.

The Center for Medicare Advocacy, which aids people with Medicare problems, said the bill would make prescription drug coverage more affordable for beneficiaries and taxpayers alike. In addition, a new appeals process in the bill would protect beneficiaries by ensuring timely access to non-formulary drugs when medically necessary, the organization said.

The concept of HHS direct negotiation of drug prices is one that has had support from several physician organizations, including the American Medical Association. The AMA has not yet weighed in on the new bill.

AARP also has supported direct negotiation and backs the new bill, but the organization doesn't think the legislation goes far enough on the concept. "We would like to see it be broader and apply to all Part D plans, not just the government-run plan," said Paul Cotton, a senior legislative representative for AARP. (See correction)

Pharmaceutical benefit managers, health plans and drug firms are on the other side of the debate, saying direct negotiation would disrupt a system that has proven effective since the launch of Part D in 2006, Changing the current system would lead to government price fixing, cost shifting and eventual drug rationing, they said.

"The competitive market approach of the Medicare drug benefit is working well for patients and taxpayers," said Ken Johnson, senior vice president of the Pharmaceutical Research and Manufacturers of America.

Citing data from the Centers for Medicare & Medicaid Services, Johnson said beneficiaries saved an average of $1,200 on prescription drugs in 2008, and the average total value of enhanced government subsidies for low-income beneficiaries was $3,900.

Some outside policy experts also see no reason for the government to inject itself in the process. "I haven't seen anything to suggest that there's dissatisfaction with the program," said Gail Wilensky, PhD, a former Medicare administrator and senior fellow with Project HOPE, an international health advocacy organization based in Bethesda, Md.

Wilensky cited a Dec. 18, 2008, report from the Congressional Budget Office as a sign that the current Medicare Part D pricing process is working adequately. CBO concluded that direct government negotiation "would produce small, if any savings, because the [HHS] secretary would not have sufficient leverage in such negotiations to secure significant discounts on most drugs beyond those already obtained" by PBMs.

"I think this is a solution for a problem that doesn't exist," she said.

The print version of this content appeared in the Feb 16, 2009 issue of American Medical News.

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