The wrong remedy for Rx drugs
The growing price tag of the Medicare prescription-drug bill has
caused many in Congress to take a much-needed second look at what
they passed last November.
Unfortunately, there's a good chance they will wind up making
The problem, by now, is well known: Supporters assured skeptics
that the legislation would cost "only" $400 billion over 10 years,
despite warnings that it would cost much more. Now, before even one
pill has been dispensed, the administration has upped the cost
estimate by $134 billion.
Suddenly, lawmakers are looking for places to save money - a novel
and welcome impulse for many. But the most widely proposed cure
makes it clear that they've misdiagnosed the problem. They want to
let the federal government use the "enormous market clout" of 41
million Medicare beneficiaries to drive down the cost of
The current law prohibits the federal government from interfering
in price negotiations between drug makers and the private plans
that will provide all of this new drug coverage for seniors. In the
interest of "saving money," some lawmakers want to strike that
clause. After all, if the government is going to buy drugs for
seniors, shouldn't it use its new purchasing power to get seniors a
One problem is that drugs aren't a commodity like wheat, sugar or
oil. With a commodity, all suppliers are offering essentially the
same product, and price is what matters most to the buyer.
Thanks to innovation by pharmaceutical companies, doctors can
choose from a number of different drugs when treating conditions
such as high blood pressure, diabetes and elevated cholesterol. But
for any given condition, one drug will work better for some
patients, a different one for others.
Thus, if we use price as the deciding factor in figuring out which
drugs to buy for Medicare enrollees, we'll do a poor job treating
some patients' illnesses. The law of unintended consequences comes
into play, too: If Medicare patients lack the right drugs, we may
end up spending more for doctors and hospital visits.
Striking the right balance between the price and the availability
of drugs is difficult.
That's why the authors of the drug benefit left that job to
private insurers and pharmacy benefit managers (PBMs). They wrote
the law to let Medicare beneficiaries choose between competing
private drug plans. That way, the plans will have to respond to
consumer pressure to keep costs down and to keep a broad range of
drug therapies available.
Private PBMs do this for millions of Americans. There's no reason
to believe the government could do a better job. (If it could,
wouldn't it be doing it for the 10 million or so who rely on the
Federal Employees Health Benefit Program?)
For one thing, when it comes to purchasing power, 41 million
Medicare enrollees may sound like a lot, but it's only second tier.
If Medicare ran its own PBM, it would still be only the country's
fourth largest. Last year, AdvancePCS covered 75 million
individuals, Medco Health Solutions 65 million and Express Scripts
Plus, more than three out of every four Medicare beneficiaries
have some kind of drug coverage already, and most get their drugs
through a PBM. That leaves about 10 million beneficiaries without
Why not let them get drug coverage through one of the giant PBMs
that already have track records successfully negotiating low drug
prices while still maintaining patient access to a wide range of
drugs? That way, Medicare can exploit the even more "enormous
market clout" of private PBMs instead of trying to reinvent the
After all, if the government stepped into the middle of those
negotiations, the PBMs would become irrelevant. That's because, to
be more effective than PBMs, the government would have to tell drug
makers: "Accept what we're willing to pay or we won't make your
drug available in Medicare."
If that happened, it would leave some patients without the drugs
that work best for them. Worse, they no longer could choose a
different plan that covered the drug they need, since no other
plans would be available. Instead, the patients (with the drug
makers right behind) would have to go lobby Congress to overrule
There's a better way: Instead of injecting more government
dictates in Medicare, lawmakers should redesign the program along
free-market lines. They should make even more plans available, so
the people who lack coverage now can select the one that best suits
The goal is to make sure all retired people have access to the
best drugs at the best prices. And the answer is more freedom, not
more government tinkering.
Feulner is president of The Heritage Foundation (heritage.org).
First appeared on The Hill.com