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Commentary

Medicare Part D and Prescription Drug Prices
Policy Fact Sheet

Mark McClellan, Pacific Research Institute, 1-9-07

This fact sheet, signed by a number of scholars from leading free market think tanks, explains why the recent success of the Medicare Part D drug benefit shouldn't be undermined by federal price negotiations.

Government price negotiation means government would control which drugs are available. Before proceeding with proposals that will surely restrict access to drugs and which most likely won't save money, we should first make sure we do no harm to seniors who are enjoying both choice and lower costs as a result of the competitive Part D model.

More than 38 million seniors have drug coverage. According to CMS, more than 70% of them are not subject the doughnut hole, either because their Part D plan provides coverage in the gap, because they have retiree plans with continuous coverage, or because they qualify for the low-income subsidy and aren't subject to the gap. The great majority of the remaining beneficiaries with no coverage in the gap are not expected to have drug spending high enough to reach the gap. And Medicare is delivering these benefits at a far lower cost than had been expected.

Having the government involved in "negotiating" prices would mean that government choices, rather than beneficiary choices, would be deciding which drugs are available.

Although disagreements remain over whether a universal drug benefit in Medicare was prudent, the drug benefit was created on a new model that brings private competition into play to offer seniors lower prices and greater choice. That is far better than a government-controlled system. Medicare Part D is succeeding beyond expectations in terms of beneficiary satisfaction and costs.

Congress should build on this success and use it as a model to reshape other public programs around competition and choice.



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