Franken Sense

The Senator from SNL, Al Franken, has introduced legislation that would allow the federal government to negotiate lower drug prices for Medicare beneficiaries.

In other words, legislation that would abolish the Non-Interference Clause.

Franken says that his Prescription Drug and Health Improvement Act would cut prescription drug costs for seniors in Minnesota and across the country.

“When I travel around Minnesota, I always hear from seniors that they’re still paying far too much for prescription drugs,” Franken said.

That’s Franken nonsense.

Some things to consider:

"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

"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."

"Our View On Medicare Part D: Put Brakes On Drug Plan 'Fix,'" USA Today, 11/13/06

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

* The projected cost for Medicare Part D is $117 billion lower over the next decade than experts estimated just last summer. This means that over the 10-year period from 2008 to 2017, the estimated $915 billion cost of Part D fell to $798 billion.

Why?  Marketplace competition.

* And, according to a study published in the Annals of Internal Medicine, the Medicare drug benefit led to a 17 percent decrease in out-of-pocket expenses, or $9 a month, for seniors who enrolled in the new Medicare Part D benefit in 2006, the first full year prescription coverage became available in the federal health insurance program for the elderly and disabled.

* And the savings amounted to an extra 14 days of medicine for those who signed up, or a 19 percent increase in prescription usage.

Can Part D be made even better? Absolutely. But this is good news worth sharing -- and not because it helps any particular partisan political agenda but because it means that more Americans -- tens of millions of more Americans -- are getting access to the medicines (largely chronic medicines) that will help them live healthier lives. And this, in no small measure, significantly reduces more drastic medical interventions -- which in turn reduces our overall national health care spending.

We shouldn’t interfere with success.

By revoking the Non-Interference clause, Uncle Sam will be able to "negotiate" prices for Part D drugs.  That's kind of like negotiating with your hands tied behind your back and a gun pointed at your head.  There's also the potential for Uncle to dictate that Part D prices be tied to prices in other countries -- a kind of Medicare reference price.

“Direct negotiations” means price controls.  And price controls = choice controls.