Monday, January 15, 2007

With drug prices, look before leaping

By Boston Herald editorial staff
Sunday, January 14, 2007

The House on Friday passed a bill requiring the government to negotiate drug prices for Medicare without really thinking through the issues. If the Senate doesn’t stop this runaway legislative freight train, surely the president will.

Backers claim there’s no reason for Medicare not to adopt the strategy of the Veterans Administration, which does negotiate prices downward from the 24 percent discount off the wholesale price (about as real as an automobile sticker price) the government requires for sales to the VA. But the law establishing a new Medicare drug benefit explicitly forbids the government to negotiate with drug suppliers.

The VA has a bargaining chip the House leaders forbade in drawing up their bill: a “formulary,” a list of approved drugs for its patients. If a drug company doesn’t negotiate what VA considers satisfactory additional discounts, its drugs don’t make the list. (Patients can appeal for an unapproved drug, but that means taking on the VA bureaucracy.)

Without a Medicare-wide formulary (the subsidized Part D plans have their own formularies and do their own negotiating), it’s hard to see how the government can do better than private Medicare drug plans are doing now - indeed, the Congressional Budget Office and Medicare say it can’t.

The VA model is a poor one. Only 19 percent of new drugs approved since 2000 have made it onto the VA formulary. Tysabri for multiple sclerosis is on every Part D formulary, but not the VA’s. Not one of the drugs approved by the Food and Drug Administration as a priority since 2000 is on the list. Frank Lichtenberg, an economist at the Columbia University Graduate School of Business, has estimated that “the use of older drugs in the VA system may have reduced life expectancy by 2.04 months” per person.

Medicare’s Part D plans are doing better than expected, covering more than 90 percent of the eligible. The costs ($30 billion last year, $26 billion below initial estimates) are coming in below initial estimates. And 2 million VA patients are so unhappy with the VA formulary that they are using Part D.

Medicare’s Part D arrangements surely can be improved, but this half-step toward outright price controls is not the way to go.