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Let Medicare bargain with drug makers

Posted By: GuamPDN

Written By: USA Today Editorial Board

Recent disclosures of how much Medicare pays doctors provoked news stories about patients getting hyperexpensive drugs for cancer, glaucoma and other diseases -- and providers getting rich in the process.

Medicare's "Part B" program pays roughly $20 billion a year for the drugs patients get in doctors' offices and hospital outpatient facilities. There's room for savings in Part B, but the real drug-spending problem is Medicare's "Part D" prescription plan, which began in 2006.

Part D already costs about $80 billion a year and is on track to double by 2022 as benefits improve and Baby Boomers retire. For two reasons, a significant chunk of that money is wasted on overpayments to drug companies:

  • When Part D began, millions of patients were shifted over from Medicaid, the state-federal program for low-income people that gets far lower drug prices than Medicare. Suddenly, the cost of providing drugs to the same people shot up.

  • Congress barred Medicare from negotiating the way Medicaid and the Department of Veterans Affairs do with drug makers to get lower prices. Instead, lawmakers insisted the job be done by private insurance companies.

In 2006, when Democrats wanted to change the fledgling law to let Medicare use its enormous leverage to bargain with drug makers, we thought such a step was premature. Eight years later, however, the rosy stories about how well private insurers were keeping prices down turn out to have been exaggerated.

Part D has cost less than predicted because fewer people signed up than projected and because drug prices fell as fewer blockbuster medicines came to market and expensive drugs came off patent, allowing inexpensive generics to replace them.

The discounts available to private insurers pale beside the ones the government gets for Medicaid. According to the Kaiser Family Foundation, Medicaid's practice of setting minimum discounts, and bargaining for more, yields savings three times bigger than the ones private insurers get for Medicare Part D. When the government is spending taxpayer money, that's just too big a discrepancy to ignore.

How much could Part D save? The Congressional Budget Office says that simply giving Medicare's low-income beneficiaries the same discount available under Medicaid would save $116 billion over 10 years -- serious savings that could cut the cost of the program by roughly 10 percent a year. By some calculations, extending Medicaid-style savings to all 35 million of Medicare's Part D beneficiaries could save an additional $39 billion over 10 years.

Drug makers give the familiar argument that cutting prices will reduce research and development, stunting the supply of new drugs. But Part D is already a windfall for drug companies, which spend more on marketing medicines than they do on basic research anyway.

Although Congress could get a better deal for taxpayers by letting Medicare bargain, proposals to do so are going nowhere on Capitol Hill, where drug makers wield considerable clout. That's something to ask candidates about the next time they complain that government spends too much on health care.

USA TODAY's editorial opinions are decided by its Editorial Board, separate from the news staff. Most editorials are coupled with an opposing view -- a unique USA TODAY feature.

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