Bad Omens for a Medicare Drug Benefit. (Calling All Consumers)

Article excerpt

Many senior citizens would like the Medicare program to include a prescription drug benefit. But how much would beneficiaries actually benefit from such a program change?

Recent events highlight two dangers that could result from a Medicare prescription drug benefit that's not worth having. The first danger is that the government could finagle such a lowball price for the drugs it buys that there would be little incentive for drug companies to develop new drugs in the future. Drugs that could be developed but are not--because financial incentives have been destroyed--are a loss to senior citizens and to all health care consumers.

How could the government get away with this? The government is often in a unique position because it is both the buyer and the regulator of many products. This position can give the government considerable bargaining power--but sometimes to its own detriment and that of consumers in the long run. Last month, as detailed in the article by John Calfee at page 14, the government threatened the patent of Cipro in order to gain the short-term benefit of a significant reduction in price for the powerful antibiotic that is very effective against anthrax.

If the government became the buyer of all the prescription drugs for all Medicare beneficiaries, would it be able to resist the temptation to bargain for prices that cover little more than the cost of manufacturing the drugs--ignoring the cost of research and development?

The other danger is that the government might actually pay too high a price for the drugs it buys, resulting in co-payments for program beneficiaries that are too high. While the government's political incentive is to drive a hard bargain, the reality is that the government buys so many things that it sometimes has a hard time figuring when it's the one being taken for a ride.

This second danger is highlighted by a recent General Accounting Office report showing that Medicare already pays a significantly higher price for some drugs than it ought to. Medicare already covers a number of drugs, in particular drugs that cannot be self-administered and are related to a physician's services, or drugs that are provided in conjuction with covered durable medical equipment. …