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Commentary

Bad Medicine
New York Sun, 12-12-06

The Sun also advises the next Congress to consider its options carefully before instituting price negotiations for the Medicare drug benefit:

One of the top priorities of the Democrats in the 110th Congress that begins next month will be an initiative to allow the federal government to negotiate with drug companies the prices of drugs paid for by Medicaid and Medicare. Democrats in both the new House and Senate leadership have been pushing this. Rep. Nancy Pelosi, who will be speaker of the House, wrote a letter on October 26 saying, "Democrats strongly believe that the Secretary of Health and Human Services should be required to negotiate lower drug prices on behalf of seniors, just as the Veterans' Administration currently does on behalf of veterans." Senator Schumer, who will be the no. 3 Democrat in the Senate, also has backed the idea and announced it as one of his priorities, also citing the veterans' program.

Before rushing into adopting the Veterans Administration approach for Medicare and Medicaid, the Democrats may want to take a chill pill. The taxpayers may be paying a premium for it under the current rules, but at least the pills are for sale. Yet a report out this month from the Pharmaceutical Research and Manufacturers of America reports that many popular drugs, including the antihistamine Clarinex and the cholesterol level management drug Crestor, aren't even available from the Veterans Administration. We can only imagine the yowling from senior citizens and doctors when they find out that under Schumer–Pelosi–Care, their favorite medicines are no longer available because the federal government wanted lower prices.

It's one thing for the V.A., which has about 7 million patients, to negotiate prices; it's another thing entirely for Medicare, which has 42 million. A report released last month by the economist Benjamin Zycher, a senior fellow at the Manhattan Institute, which receives some funding from drug companies, disclosed previously unpublished projections from the federal government that the federal government will account for more than 40% of all the medicine–buying in America. That starts to get into what economists call a monopsony, or a buyer with what approaches monopoly power. "Negotiating" prices sounds good. But Mr. Zycher's study projects that it would produce a decline in investment in new drug research and development of about $10 billion a year, costing a loss of 5 million expected life–years annually.



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