Centerfield: Canada, Drug Prices, & Medicare--The Rant Continues

December 24, 2003

Canada, Drug Prices, & Medicare--The Rant Continues

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I've written extensively about the Medicare Bill both here and elsewhere. Now comes the confirmation that of all the things the bill is intended to do, actually lowering drug prices is NOT one of them.

To be sure, much of the stated intention of the bill is to lower drug costs to the elderly with huge drug bills. And to some extent it actually does that, by shifting the cost burden to the taxpayers. But it doesn't do a single thing to control the extortionate price of drugs that led to millions of Americans buying their drugs from Canada and other countries. Quite the opposite--by tapping into the Treasury, the bill gives pharmaceutical companies a blank check to continue making huge profits stiffing U.S. consumers with much higher prices than they sell those same drugs for elsewhere. This is why the drug companies were all in favor of the bill, and massively lobbied for its passage.

It's also why the bill specifically prohibited states and cities from negotiating price agreements on their own to reduce the cost burdens they face. Predictably, those same cities and states, faced with sharply rising drug costs both under state Medicaid programs and their own self-funded health plans and with the ban on price negotiations that by itself constitutes a huge unfunded federal mandate to pay extortion to the drug companies, are exploring and establishing their own deals with Canadian drug suppliers, which has the FDA frantic. The FDA is going to great lengths to discourage the practice, which is illegal under federal law. To do so, they not only are loudly threatening legal action against the cities and states, but also trotting out the old "foreign drugs are not safe" argument.

Canadian drugs are susbstantially cheaper for two major reasons. The first is that under the Canadian health care system, the individual provinces are allowed to negotiate prices with the drug companies. The second is that Canadians aren't stiffed the same "premium" for drug development costs that U.S. consumers are. So Canadian drugs are cheaper because they can negotiate prices, and because American consumers already subsidize the lower price of foreign drugs by soaking up those development costs themselves.

Remember, these are the same drugs, produced by the same companies, that Americans get. The drug companies tried the "foreign drugs aren't safe" argument briefly during the debate on the Medicare Bill, but quietly dropped it when people started asking why drug companies were manufacturing and selling unsafe drugs to Canadians. Now the FDA has taken up the baton to justify the support of a pharmaceutical monopoly price structure, and the massive giveaway of American tax dollars to drug companies.

And it still doesn't wash. A revolt is brewing over this massive unfunded mandate, and it's not going to get smaller. There is no good reason for Americans to be charged more than others for these drugs. If passing the development costs on to consumers in other countries is a problem, it's a problem for those countries. And there is absolutely NO good reason to ban states and cities from negotiating their own drug prices, rather than getting stuck with a full-price mandate from the federal government.

But hey, you already knew the drug companies really liked the Medicare Bill for good reasons, didn't you?

Posted by Tully at December 24, 2003 12:50 PM

Comments

I agree with this assessment, but as someone who worked very closely with those that drafted the bill, I did support it.

The original bill that was passed out of the House of Representatives contained drastic premium support measures that would have allowed Medicare Beneficiaries to use Health Savings Accounts with the goal of providing them with more choice in the market. You all know the arugment, if Medicare and private companies are forced to compete, prices will fall and quality will increase much like the New America Foundation outlines in "The Radical Center."

Had the competition provisions in the House Bill been included in the Final Conference Report the Medicare Bill would not have passed the United States Senate. The Democrats and Moderate Republicans in the Senate argued that premium support would mean "privatization" or the end of Medicare. My question is: if Medicare cannot make it in the market than why is it such a fabulous social program?

When the determination was made that premium support killed the bill, leadership started to ask themselves: are drastic reforms worth giving up the Medicare Prescription Drug benefit for Seniors, and for part political and part policy reasons the answer to that question was a resounding "no."

I think they made the right decision, although I know many reform minded individuals voted for this bill hoping and praying that it would be revisited over the next decade. Rumor has it that if there is a second term for the President and the Republicans gain a bigger majority in the Senate, that this scenario will be more likely. It will certainly be easier for a President who does not have to run again to buck big money drug and insurance companies and do what is right, my doubts are that Congress will follow suit.

It makes no sense for government to offer health insurance to seniors without prescription drug coverage. Where Congress went wrong in my book is that there are very few measures in the bill that regulate who receives the drug benefit. If Bill Gates where to retire at age 65, it is my understanding that under this plan he could choose to receive the Medicare drug benefit, which is ridiculous. We should be helping those in need, but again had any stricter cost measures been included in the final bill it would have not passed the United States Senate.

What struck me during this process is a complete inability by those in power to consider any type of reform that would have actually made Medicare a better government program. Sound policy arguments and a complete denial of the truth where common during the Medicare debate, mostly, I think, because of the political nature of this issue.

Many times I listened to arguments by the Centrist Policy Network, and even the Heritage Foundation, that made a lot of sense to me, and I hope these people play a roll in the next few years in improving the Medicare Bill and enacting reform measures that will actually address the problem. A presciption drug benefit was a worthy step, but it was only one step in what needs to be many to ensure the health security of future generations.

Posted by: Mathew Pruitt at December 24, 2003 03:15 PM

I'm not sure what a good answer is to the growing problem with health insurance/medicare. I just know that the rising costs of medical care and drugs is getting out of control. If there are no changes, I envision a time when employers will no longer be able to afford to provide health care benefits or will only be able to cover a portion of the costs, and the numbers of uninsured will grow to epidemic proportions.

Posted by: Heather Feuerhelm at December 24, 2003 05:07 PM

I have been pondering about the "fix" for this enormous problem. Many people know much more about the intracacies than I do, so it will come as no surprise if my ideas are off base or impractical.... but here is one that I offer for reaction.

Suppose legislation was passed that (1) allowed drug companies to set prices on their drugs -- without government intervening to say what is "fair", but that (2) required the price for a drug from a company to be the same no matter who is buying it and where it is being sold, anywhere on the globe.

In this model, if a huge health care provider were to get XYZ Drug Company to give it a lower price than is curently charged on the "open market" (if that term even applies to pharmaceuticals) --- then that price would go into effect for all that drug, no matter who it is being sold to.

Posted by: Palindrome at December 25, 2003 01:48 AM

Centerfield

A Weblog of Centrist Voices in American Politics

December 24, 2003

Canada, Drug Prices, & Medicare--The Rant Continues