Medicare Plan D reform

This past Friday, the US House of Representative approved a bill requiring the government to negotiate with drug companies over the cost of price of medicines for Medicare users. However, according to Tony Snow, “If this bill is presented to the President, he will veto it” and, “We have a Medicare prescription drug reform that has been saving people significant amounts of money; it is effective.” Presumably then, this bill does not save Americans more money than the previous Medicare drug plan. If precedent is any indicator of the future, we should actually expect decreases in the cost of medicine. A survey released on December 21, 2005 by Families USA found the opposite true of Tony Snow’s statement.

A survey released today found that drug prices under the new Medicare drug
program will be considerably higher than the prices negotiated by the Department
of Veterans Affairs (VA). According to the survey, the median price difference
for the 20 drugs most frequently used by seniors is 48.2 percent. (Families
USA)

The survey systematically compared the price the VA pays, which negotiates with the pharmaceutical industry, for its drugs and price Medicare participants pay. Not surprisingly, “The survey found that the lowest VA price is much lower than the lowest Medicare prescription drug plan (PDP) price for 19 of the top 20 drugs” and “For half of the top 20 drugs, the lowest Medicare prescription drug plan price is at least one and one-half times higher than the lowest VA price.” Specifically, the cholesterol lowering agent, Zocor costs the VA $167.80 per year of usage; whereas Medicare pays $1,323.72. A difference of $1,155.92! A more detailed look at the drug prices can be found here.

However, opponents of the bill contend, as David Hogberg of the National Policy Analysis and a blogger at USA Today has, that this bill amounts to nothing more than price control. However, the bill simply dictates that the government must negotiate lower prices, not necessarily obtain or force unnaturally low prices. Hogberg also believes this bill will in fact raise drug prices. Following the trend of the VA, it seems logical that if the government, the largest single buyer of medicine with the greatest purchasing power in the world, negotiates en masse, the government will obtain at the very least the same prices, if not lower prices, for medications.

Opponents also argue that by decreasing the cost of the drugs, innovation will decrease markedly because of a lack of funds for research and development. Currently, R&D constitutes between 10-15% of the budget on average (CPT). Furthermore, according to author Marcia Angell, “In 2002, the top 10 American [pharmaceutical] companies in the Fortune 500 made 17 percent of their sales in profits, whereas they spent only 14 percent on R&D” and “they spend two to two-and-a-half times as much on what they call “marketing and administration” (Mother Jones). Only one pharmaceutical company, when filing with the SEC differentiated between marketing and administration costs: Novartis spent a staggering 36 percent of its revenues on marketing alone (Science Week). It seems the only thing that would suffer is the onslaught of Cialis and Viagra ads, not research. Even the amount spent on R&D is misleading. Angell stated:

Well, no one knows for sure what goes into the R&D budget, because the
companies aren’t telling. It’s been estimated that about a quarter of it is
spent on Phase IV clinical trials, many of which are just excuses to pay doctors
to prescribe the drug. They don’t yield any real scientific information. But no
one knows for sure.

This does not even factor publicly funded research conducted at universities and the National Institute of Health, where the drug companies obtain many of their promising leads.

Currently, in the World Health Organization’s rankings of health care systems, the United States, despite spending the most on health care, ranks for 37th, just behind Costa Rica and ahead of Slovenia. France, with a more progressive and socialized health system, ranks first. While this bill will not vault us to the top, it is certainly a step in the right direction. Medicare wants the best drugs at an affordable price. It is not in Medicare’s interest to negotiate a price the only reduces quality of care – eventually Medicare would have to pay for that increase. Rather, this bill aspires to obtain an honest price for premier medical care.