HR 4: Displacing the Market With Government’s Heavy Hand

By January 12, 2007General

“When you get in bed with the federal government,” Ronald Reagan famously said, “You get more than a good night’s sleep.” Today, as part of its “100 Hours” march, the Congress will try its level best to foul private sector success with the heavy hand of government. At issue is H.R. 4, the bill that will allow the US Government to negotiate directly with pharmaceutical companies when purchasing drugs for the newly-enacted — and highly successful — Medicare Part D program. On its face, it sounds great, as do most “100 Hours” items: Let the government use its enormous buying power — sort of like Wal-Mart on (prescription) steroids — and presto, watch the prices plummet. Only problem is, it doesn’t work.

Unfortunately for the proponents of this bill, there are far too many real-life examples of government-negotiated prices for pharmaceuticals. In those that come immediately to mind both here and abroad — the EU, Canada, Medicaid and the Veterans Administration (VA) — it’s been a miserable failure, serving only to reduce beneficiaries’ access to medication. The plain truth about the VA plan — held up by liberals as the most shining example of how this can work — is that the VA keeps prices low by limiting drug choices.

According to this article in yesterday’s WaPo, “VA prices are also low because VA, which prescribes medications for 4.4 million veterans annually, has a relatively narrow formulary, or list of approved drugs. The agency secures big discounts from the manufacturers of a few drugs in each class by promising not to offer competing drugs.” Prices may drop, but so do the number of drugs available to seniors. Lost in the shuffle are some of the newest, most effective medicines. In fact, this recent Weekly Standard article notes that a mere 19 percent of prescription drugs approved since 2000 and 38 percent of those approved from 1990-2000 are available through the VA prescription drug plan. Not a single drug regarded as a priority medicine by the Food and Drug Administration since 2000 are available under the VA plan.

At core, this debate is about whether lawmakers put their trust in the market or the government. This year alone, premiums for the drug benefit under Medicare Part B are 40% lower than originally expected as drug makers compete for their share of the market. As Robert Goldberg points out in the Weekly Standard piece, above, some 2 million VA beneficiaries have voted with their feet, leaving the land of government-negotiated prices for Medicare Part D. The promise of lower prices evaporates in the face of fewer choices. Said the non-partisan Congressional Budget Office in a letter to House Energy and Commerce Committee Chair John Dingell (D-MI) on Wednesday:

“CBO estimates that H.R. 4 would have a negligible effect on federal spending
because we anticipate that the Secretary would be unable to negotiate prices
across the broad range of covered Part D drugs that are more favorable than
those obtained by [prescription drug plans] under current law.”

While Congress debates a better deal for the nation’s seniors, the market is working. Those intent on injecting the heavy hand of government into Medicare Part D would do well to heed the warning of a famous Greek doctor: “First, do no harm.”

UPDATE (By Carter Wood, 2:43 p.m.): H.R. 4 passes the House on a 255-170 vote. All Democrats vote in favor. Results of Roll Call No. 23 can be seen here.

UPDATE 2: The NAM issued its first “Key Vote Letter” of the 110th Congress on H.R. 4, which you can read here. Identified by an advisory committee of manufacturers of all sizes, key votes are those used to determine a Member’s record on manufacturing issues. On H.R. 4, the NAM wrote:

A compelling case has not been made to overhaul a process that appears to be working. Conversely, requiring the government to negotiate a one-size-fits-all solution could result in higher prices for seniors and our retirees, reduce the array of available drugs and reduce funding for research and development of new drugs that can benefit those who are ill.

Join the discussion One Comment

  • Dr X says:

    If you think this is bad. The Center for Medicare and Medicaid has cut physician payment by 50-80% over the last 20 years. Malpractice has increased exponentially. In addition it is mandated that anyone who enters the emergency room be taken care of, so if they do not have insurance, or are illegal and do not qualify for medicaid…it’s free, we cannot write it off…and best of all we are liable for any lawsuits. They recently admitted to the american college of surgeons that in addition to their poor rates for Medicare, (Madicaid pays 1/2 for the same given service) they are currently paying 90% of the work being done, 65% of the direct expenses and 35% of the indirect expenses (see http://www.facs.org). Can you think of any other business that works this way?