Murdock explains why policymakers who want to make the Medicare drug benefit more like the Veteran’s Administration National Formulary—with attendant price controls—risk inflicting serious harm on consumers and the industry that supplies Americans with vital new medicines.
The VA's National Formulary (VANF) is more Model–T than Maserati. Congress should park this vehicle in a junkyard.
The VANF does not involve VA officials and pharmaceutical executives cutting deals around a conference table. This is a federal price-control program. The VA buys drugs from pharmaceutical companies at a minimum 24 percent discount below the average manufacturer's price, or the "best price" offered to private-sector purchasers, whichever is lower. Not surprisingly, paying drug suppliers nearly one–quarter below wholesale generates myriad economic distortions for which patients pay the price.
The vaunted VANF covers some 1,300 drugs, just 30 percent of the 4,300 drugs available on Medicare's market–priced formulary.
"The VA system does not provide a formulary that is comparable in scope to those currently provided by Medicare Part D plans," Kathleen Hughes, Wendy Watson, and Thomas Goss concluded in their December study for Covance Market Access Services. Covance's paper, prepared for the Pharmaceutical Research and Manufacturers of America, analyzed the 226 drugs most commonly prescribed for Americans over 65.
Of these, Medicare covers 213. VANF includes 165, or just 73 percent, of these agents. Medicare covers all 26 anti–depression compounds Covance examined; VANF includes 17 (65 percent)...
Covance found 26 drugs Medicare covers that VANF excludes. These drugs accounted for 264 million prescriptions in 2004. Beyond the reach of V.A. patients, these drugs include Nexium for acid reflux and Alimta, Avastin and Herceptin for cancer.
VANF also resembles the medicine chest in a long–abandoned house. Its contents may be cheap, but they're hardly modern.