October 25, 2007

Like a horror-film monster that refuses to die, Congressional efforts to force Medicare to "negotiate" drug prices with the pharmaceutical producers---killed earlier this year---for the Part D drug benefit have surfaced again. In support of such efforts, Consumers Union and the Medicare Rights Center have issued a "report" finding that price discounts negotiated privately for Part D are smaller than those imposed by the federal leviathan under Medicaid.

Well, duh. The private-sector insurers and others administering the Part D drug benefit---pharmacy benefit managers---have customers who want both low prices and large formularies, that is, lists of approved drugs. The federal government, on the other hand, has not customers but instead interest groups fighting to get their snouts into the federal budget trough. And so the central incentive is to generate Part D budget savings in the here and now---applauded by other interest groups seeking increases in their favored programs---at the expense of formularies more restrictive. And if Part D patients become unhappy with that tradeoff? Go ahead: Write your Congressman. That'll show 'em.

Unlike our horror movie, in the production of which no actual humans were harmed, federal price negotiations for drugs will yield massive costs in terms of reduced life expectancies over time. Why? Because lower prices will reduce incentives for the research and development investments yielding new and improved medicines. It happens that I examined this issue about a year ago, and a conservative estimate of this adverse effect is a loss of about 5 million life-years annually. But fear not: Maybe the feds can negotiate with the viruses, cancers, and other sources of human suffering.

Posted by Benjamin Zycher at October 25, 2007 07:07 PM

Comments

Post a comment