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Commentary

Letting Medicare use its bargaining power would send a strong message that drug prices are unsustainably high
Susan Stranahan, AARP, 1-1-07

The AARP weighs in with its support for drug price negotiations in the Medicare drug benefit, a position with which we disagree—but one held by many policymakers. But the AARP also recognizes that the VA model is not a good one for seniors.

Advocates argue that aggressive bargaining by the government can reduce costs, pointing to the low prices the Department of Veterans Affairs negotiates with drug companies as proof. But analysts on both sides of the issue say invoking the VA model is misleading because the VA covers far fewer drugs for far fewer beneficiaries.

AARP has supported the MEND (Medicare Enhancement for Needed Drugs) Act cosponsored by Sens. Olympia J. Snowe, R–Maine, and Ron Wyden, D–Ore., which would repeal the ban and give the HHS secretary authority to bargain for lower prices. The bill, which drew 54 supporters last year, would also allow individual Medicare plans to request the secretary's help if they felt they weren't getting a good deal on prices. A 2005 House proposal to force the government to negotiate had 133 supporters but wasn't brought up for a vote. Other proposals are expected early this year.

While public support for government bargaining power is very high–in a recent survey 90 percent of AARP members favored it–President Bush could veto any legislation that requires government negotiations. And in any event, HHS Secretary Mike Leavitt says he won't bargain even if given the authority to do so. He criticizes negotiations as "a surrogate for a much larger issue, which is really government–run health care."

We would respectfully argue, however, that the AARP is trying to have its cake and eat it too. Negotiations entail the possibility that one or both parties can walk away from the table. Medicare drug benefit negotiations would have no meaning without the ability of the government to exclude drugs from a national formulary. Companies could, of course, refuse to sell to Medicare, but given that Medicare accounts for the lion's share of the nation's prescription drug market, and companies need to recoup at least some of their sunk costs, this is highly unlikely. In short, negotiations require a formulary, and the government's monopsony power would transform negotiations into de facto price controls.



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