Hiding Behind Bipartisanship

Paul Howard and Yevgeniy Feyman

For policy wonks, the words "Simpson-Bowles" hold a special place in their hearts. The commission, headed by former Senator Alan Simpson and former Clinton Chief of Staff Erskine Bowles, released a massive report at the end of 2010 that sought to completely eliminate the federal budget deficit by 2035 with a 2 to 1 spending/revenue ratio. The plan wasn't perfect, and ultimately didn't pass muster at the Senate, but many of the ideas it brought up were based on solid evidence with a real chance of achieving the broader budgetary goals.

One of the less palatable ideas proposed in the plan was to impose Medicaid drug rebates (price controls, in reality) for Medicare Part D for the dual-eligible population (those who are eligible for Medicaid and Medicare coverage). While it's been estimated that this plan could save $49 billion in Medicare spending, the impact on innovation could be significant - cutting prices for drugs dampens the incentive for drug companies to innovate. The dual-eligible population in particular often suffers chronic conditions for which innovative medicines are in short supply - these rebates wouldn't be of much help.

But bad ideas are like a boomerang - they always seem to return.

In his State of the Union address, President Obama characterized the price Medicare pays for drugs as subsidy to the pharmaceutical industry:

On Medicare, I'm prepared to enact reforms that will achieve the same amount of health care savings by the beginning of the next decade as the reforms proposed by the bipartisan Simpson-Bowles commission...We'll reduce taxpayer subsidies to prescription drug companies

To put it simply, paying the market price for a drug isn't a subsidy - it's business.

More importantly, however, by pursuing what are effectively price controls, the president is wasting a potential watershed moment for dealing with the dual-eligible population - a group of beneficiaries that account for 15 percent of Medicaid's population and 21 percent  of Medicare's population, but account for 39 and 36 percent of the programs' spending, respectively. Rather than focus on poorly conceived price controls (which will dampen the incentive to innovate and will likely shift costs to non-dual eligible) for a narrow population, the president should have instead announced a greater focus on care coordination and elimination of duplicative services for dual eligible.

Hiding behind the feel-good moniker of "bipartisanship" may help approval ratings, but it may leave dual-eligibles without the innovative drugs they need.

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