The Key to Affordable Drug Prices: Competition and Choice

By U.S. Senator Jon Kyl The U.S. House of Representatives recently passed a bill requiring the Secretary of Health and Human Services (HHS) to negotiate Medicare prescription drug prices. The idea appears simple: the government would use its bargaining clout to force pharmaceutical companies to give seniors deep discounts. The idea, however, is neither simple nor realistic. Nor is it needed, given the success of Medicare Part D. The Medicare drug benefit is exceeding everyones best expectations. Enrollment continues to climb, with 33 million beneficiaries receiving benefits under Medicare Part D. The average savings is $1,200, and the average premium is only $22 for 2007 -- 42 percent lower than initially projected. Medicare costs are $189 billion less than anticipated, producing real savings for American taxpayers. Moreover, beneficiary satisfaction is high, with eight out of 10 beneficiaries satisfied with their Part D coverage. Part Ds success raises the old maxim: if it aint broke, dont fix it. So, how does Medicare get the best deal for its beneficiaries? The answer is simple: competition and choice. However, others would prefer restricting drug choice and setting prices. Congressional Democrats frequently cite the health benefits administered by the Department of Veterans Affairs (VA) as evidence that direct government interference leads to lower prices. While the VA provides important health benefits to millions of veterans, there are serious problems with trying to mirror Medicare after the VA. Negotiations involve tradeoffs. The VA negotiates with drug companies by offering the following deal: if you sell your drug at a deep discount, we will buy a lot of it and wont buy a similar drug from any of your competitors. Government buying, like in the case of the VA, leads to rationing and limits on choice. Medicare Part D, however, promotes competition and choice. A variety of private drug plans ensures that each of the available drugs is included in one plan or another letting the consumer choose which one best suits his or her health care needs. Unlike the federal government, private drug plans, similar to those offered under Medicare Part D, bear substantial financial risk and, therefore, have strong incentives to negotiate favorable discounts and offer drug coverage that attracts and retains enrollees. As the nonpartisan Congressional Budget Office recently concluded, the [HHS] 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. The Washington Post highlighted the VA programs major deficiency in a recent editorial: [F]ully 3,000 of the 4,300 medicines covered by Medicare are unavailable under the veterans' program. HHS Secretary Mike Leavitt recently pointed out that even Lipitor, a top-selling cholesterol-lowering drug, is excluded from the VAs drug benefit. This may explain why more than one million veterans now choose to receive their prescription drug coverage through Medicare -- a clear suggestion that they prefer Medicares plan choices and competitive market prices. In the coming weeks, the Senate will consider a Democratic leadership bill to force the HHS Secretary to negotiate drug prices for Medicare. It is a bad idea. Economic experts, patient advocacy groups, and business leaders agree that it will not lower prices, but will limit choice. Competition and choice, not government interference is the best way to provide drugs at the best possible prices.