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WebMemo #01-07 on Health Care

January 9, 2007

Medicare Malady #01-07: Drug Negotiations No Cure for Medicare's Ills

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The theory behind the House Leadership's bid to make the feds negotiate drug prices for Medicare patients is simple:  Use the leverage of the Great Society program's 42 million enrollees to drive down drug coverage costs. 

Not a bad idea, at first glance. Forty-two million is a lot of people - about the population of Spain. But that's nothing compared to the size of private-sector drug providers that Medicare will have to deal with, according to Heritage Foundation health care experts Greg D'Angelo and Robert Moffit.

Here's what D'Angelo and Moffit found: In this corner stands Medicare. It has 42 million patients but actually covers only about half - 22.5 million - through its prescription drug benefit. In the other corner are private pharmacy benefit managers. They cover 217 million individuals - or three out of every four Americans. The largest manager, Caremark, covers 80 million alone.

To paraphrase Ronald Reagan, Medicare couldn't be effective at securing lower prices because it's not negotiating from a position of strength.

Even worse, D'Angelo notes, "negotiations" mean Medicare would have to refuse coverage of drugs made by companies that refuse to produce it for the price "offered."  Thus, Medicare patients might be denied access to new or preferred drugs, if Washington bureaucrats deem them "too expensive." The only way around that problem?  Price fixing-a prescription for less medical research, fewer new drugs and higher drug prices for everybody outside the system. You can read more of D'Angelo and Moffit's research here:

For more information or to receive an e-mail version of "Medicare Maladies," contact medicaremaladies@heritage.org  or call Heritage Media Services at (202) 675-1761.  ("Medicare Maladies" is a regular feature, first launched in 2003 and revived in 2007, from The Heritage Foundation. Sad to say, there's another malady coming your way soon. Other "maladies" are also available on heritage.org.)

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