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Morning Joe (Biden)

Fri, Oct 12, 2012 | Peter Pitts

Senator Joe Biden voted against the Medicare prescription drug benefit (Part D). Vice President Biden warned said that a Romney Administration would take it away.

This proves one thing -- Part D is a big success.

No up-for-reelection veep, on a nationally televised debate during a tight race is going to be against a program with approval ratings above 90%, universally acknowledged as improving the health of seniors, and is regularly coming in below budget estimates.

What neither Vice President Biden (not surprisingly) nor Congressman Ryan (surprisingly) mentioned is the reason Part D is so successful -- its design as a public/private partnership.

Vice President Biden mentioned (although not by name) the Non-Interference Clause – and that we should do away with it. Wrong. He did not mention it was designed by then Senator Tom Daschle and the late Senator Ted Kennedy during the debate over ClintonCare.

The first question to ask is, what did Senators Tom Daschle and Ted Kennedy know that President Obama does not?  The answer is that allowing the Federal government to directly negotiate for Medicare drug prices is a bad idea.  That’s why they (Daschle and Kennedy) drafted the original language for the Non-Interference Clause.

Politics aside, consider the facts:

"It is not obvious that allowing the government to negotiate with pharmaceutical companies will lead to lower prices than those achieved by private drug plans. Private plans like Kaiser or United are able to negotiate deep discounts with pharmaceutical companies precisely because of the plans' ability to say no – the ability to include some drugs and to exclude others, allowing the market to judge the resulting formulary. On the other hand, when the government negotiates, its hands are tied because there are few drugs it can exclude without facing political backlash from doctors and the Medicare population, a very influential group of voters. Neither economic theory nor historical experience suggests government price negotiation will achieve lower drug prices. Congressional Democrats need to be careful in making the logical leap from market share to bargaining power. Empowering the government to negotiate with pharmaceutical companies is not necessarily equivalent to achieving lower drug prices. In fact, neither economic theory nor historical experience suggests that will be the outcome. Members should think carefully before jumping on the bandwagon – this promise may bring just the opposite of what was ordered."

Stanford Business School's Alain Enthoven and Kyna Fong

And in the words of the American vox populi (aka, USA Today):

"Both the non-partisan Congressional Budget Office and Medicare actuaries have said they doubt the government could negotiate lower costs than the private sector. The theory behind Part D is that market forces and competition among drug plans, overseen by government, can achieve better results than a government-run program. The multitude of plans allows seniors to pick one that best meets their needs. Government price negotiation could leave people without drugs that manufacturers decide aren't sufficiently profitable under the plan. Medicare recipients account for half of all drug prescriptions. With that kind of clout, government might try to dictate prices, not just negotiate them. This could leave people without drugs that manufacturers decide aren't sufficiently profitable under the plan. The VA plan illustrates the point. It offers 1,300 drugs, compared with 4,300 available under Part D, prompting more than one-third of retired veterans to enroll in Medicare drug plans."

Many of the President’s men and women are ready with the following talking point, “Look at how successful direct Federal negotiation works for the Veteran’s Administration,” suggesting that allowing the feds to directly negotiate for Part D is no different from the current VA scenario. But suggesting that the Veteran’s Administration “negotiates” prices for prescription drugs is a false premise. 

Under rules set by Congress, to sell drugs to the VA, companies must offer each drug at a price that “represents the same discount off a drug’s list price that the manufacturer offers its most-favored nonfederal customer under comparable terms and conditions.” The medication must be offered “at a discount of at least 24 percent off [the] nonfederal average manufacturer price (NFAMP). An excess inflation rebate is also required, equal to the percentage by which the price increase for [the] drug has exceeded the consumer price index (CPI) in the prior period.” The manufacturer must make all of its drugs available through the Federal Service Schedule for any of its drugs to be eligible for reimbursement under the VA and Defense Department health systems, the Public Health Service (including the Indian Health Service), the Coast Guard, and the various state Medicaid programs.

A study by Professor Frank Lichtenberg of Columbia University found that the majority of the VA formulary’s drugs are more than eight years old and more than 40 percent are 16 years old or more. Just 19 percent of all prescription drugs approved by the FDA since 2000 are available to veterans; only 38 percent approved during the 1990s are.

There’s a big difference between negotiating and mandating – and it’s not a thin line. A negotiated Part D plan is but the first step towards a more strident program of government price controls.

The bottom line here is that Part D is a tremendous success – due in no small part to the Non-Interference Clause. 

Say it is so, Joe.