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The Price Fight
January 11, 2007 • Volume 7, Issue 2As the debate heated up in Washington this week in advance of tomorrow’s vote that would require the federal government to negotiate lower drug prices for people with Medicare, a new report presented some startling, if little noticed, findings about Medicaid, the health program for the poor.
In 2005, state governments were able to sharply cut the rate of growth in Medicaid drug spending by banding together to negotiate steeper discounts from pharmaceutical companies and shifting consumers to lower priced medicines, the Centers for Medicare & Medicaid Services reported. Reversing a 10-year trend that had seen double digit growth in drug spending, Medicaid held growth to under 3 percent, less than half the average increase in brand-name drug prices.
Imagine that. Government can negotiate lower drug prices.
In 2006, however, over six million poor people receiving both Medicare and Medicaid were shifted from Medicaid drug coverage to coverage by private insurance companies under Medicare Part D. The result was windfall profits for drug manufacturers. The private plans have nowhere near the leverage to negotiate lower prices that state governments have.
The bill now before Congress would put that negotiating power back in the hands of the federal government for people with Medicare. Critics say the bill sharply limits the government’s negotiating power by continuing to ban Medicare from establishing a formulary, or list of covered drugs. This prevents Medicare from forcing price concessions from manufacturers who want their drugs covered.
That’s true. Full negotiating power will be achieved with a drug benefit option under the Original Medicare program, the next step the Medicare Rights Center believes Congress must take. But giving Medicare the power to negotiate is an important first step toward that goal.
An administration willing to stand up to the pharmaceutical lobby and a team of good lawyers could do a lot with this bill to force lower drug prices. Take just one example.
Norvir is a protease inhibitor that is an essential component of many drug regimens for the treatment of AIDS/HIV. As long as that remains true, Medicare could never exclude this drug from its list of covered drugs. In fact, Medicare now mandates that all Part D plans cover this drug.
Norvir costs at least $6,326 for a year’s treatment under Part D, five times the amount paid by Medicaid programs. While Medicaid limits yearly price increases to the rate of inflation, the companies running Part D pass on the hikes in drug costs, which occur at the whim of the manufacturer, to taxpayers and people with Medicare.
Norvir costs so much because its manufacturer, Abbott Laboratories, wants to make drug regimens that combine Norvir and competitors’ drugs prohibitively expensive and drive up sales of its own “cocktail” drug, according to internal company documents published last week in the Wall Street Journal.
Insurance companies have no power against such an anticompetitive scheme. The federal government, however, has the legal right to override the patent on Norvir, which was developed with the help of government grants, if Abbott refuses to sell the drug at a reasonable price. The prospect of such action gives the government plenty of negotiating leverage.
Ultimately, Congress needs to provide a simple, reliable Medicare drug benefit that covers the medicines people need at prices they can afford. That prospect has the pharmaceutical industry terrified. The industry knows that many of its best-selling drugs are simply overpriced, highly marketed versions of medicines made by competitors, including generic manufacturers. A formulary based on clinical criteria would force manufacturers to give drastic price concessions or leave them out of the game entirely.
But with the Medicare population now divided up among over 200 competing private companies, it is no easy task to make a Medicare drug benefit a viable option. And a Congress that has been in the corner of the pharmaceutical industry for the last decade needs to spar a little before it takes on a title bout. Passing legislation that mandates negotiations for lower drug prices is a tough fight, but it’s important that we win it.
The U.S. House of Representatives will vote on the Medicare Prescription Drug Price Negotiation Act of 2007 (HR 4) on Friday, January 12. Tell your representative to vote for making medicines affordable to all people with Medicare. To reach your representative’s office by phone, call 866-699-9243.
Medical Record
“I have rapid cycling bipolar disorder. One of my prescriptions alone will put me in the ‘doughnut hole’ quickly. It has no generic and costs $700 a month. I also have two other expensive medications. I spent last year scared to death for months that I would not have the medications I needed. My doctor tried to help with samples, but I seldom had enough to take as much as I needed. I bought five-days’ worth of medicine in December to hold me over until January and paid $115 for it. My income is too high to receive assistance, but not nearly enough to pay my bills and still pay for my medication once I reach the doughnut hole” (Story submitted to the Part D Monitoring Project, Medicare Rights Center, January 5, 2007).
“Medicaid drug spending growth slowed sharply in 2005, increasing just 2.8 percent, much lower than its 11.6 percent growth in 2004 and the average annual growth rate of 15.4 percent between 1994 and 2004. This dramatic slowdown occurred as states continued to undertake aggressive cost control initiatives, successfully secured higher rebates resulting from increased use of multistate purchasing pools, and changed their formularies to shift beneficiaries to drugs that offered higher rebates” (“National Health Spending in 2005: The Slowdown Continues,” Health Affairs, January/February 2007).
“Private insurers, however, bore the full brunt of the [400 percent] price hike for Norvir. And once Medicare Part D started in 2006, the private insurance companies offering Part D prescription drug plans also pay the price increase, contrary to Abbott’s claim in the Wall Street Journal that Medicare had also been exempted. Because Medicare is not subject to the price limits that apply to Medicaid and because Medicare is prohibited by law from negotiating directly with drug manufacturers, American taxpayers and people with Medicare pay over five times the price for Norvir that states pay through their Medicaid programs” (“Norvir: Gouging Medicare on AIDS Drugs,” Truth Is the Best Medicine, January 2007).
***** The Medicare Rights Center (MRC) needs to hear about all the problems with the Medicare Part D benefit, whether they happen to you or someone in your community. With this information, we will be armed with the needed evidence to push for a Medicare-administered drug benefit.
Fast Relief: Part D Monitoring Project
Submit your story at www.medicarerights.org/partdstories.html
*****
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