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Medicare Drug Prices and the Congressional Democrats

Mark Thoma points to a good piece on the Congressional politics of Medicare by Bob Reich:

Economist's View: Reich: Bad Medicine: Robert Reich says the Democrat's proposal to require Medicare to negotiate drug prices lacks the teeth it needs to be effective...

And so does Greg Mankiw:

Greg Mankiw's Blog: Dingell vs CBO: Two days ago, the Congressional Budget Office told Mr Dingell in a letter:CBO estimates that H.R. 4 would have a negligible effect on federal spending because we anticipate that the Secretary would be unable to negotiate prices across the broad range of covered Part D drugs that are more favorable than those obtained by PDPs under current law. I wonder what evidence leads Mr Dingell to expound a conclusion exactly the opposite from that reached by the Congress's own experts.... Robert Reich says CBO is right, and he does a good job of explaining why:

Let's turn the mike over to Bob:

American Prospect Online - Bad-Faith Negotiation: House Democrats are pushing a bill to require Medicare to negotiate drug prices. So far, so good. But in what appears to be a bow to the political clout of Big Pharma, the bill does not authorize Medicare to drop from its approved list drugs on which manufacturers fail to offer good deals.

This is like Wal-Mart telling its suppliers "we're going to use our bargaining clout to get from you the lowest prices for our customers -- but regardless of what price you offer we'll still carry your product in our stores." What kind of incentive is that?

The Department of Veterans Affairs gets a 25 percent discount on drug prices for veterans because if a drug company won't give a big discount, Veterans Affairs won't include the drug in its plan. Medicare recipients will only get these kinds of savings if Medicare can do the same -- walk away from a drug manufacturer that won't deal....

The current Democratic bill is calculated to make everyone happy. It allows Democrats to tell seniors and the all-important AARP that they're forcing Medicare to negotiate with drug companies. And it also allows Democrats to turn around and tell Big Pharma not to worry because the negotiations won't have any real teeth in them. Their drugs will still be approved, regardless of price.

But the bill won't make anyone happy. It won't deliver seniors real drug discounts. And Big Pharma will still fight it. Drug manufacturers see any move toward negotiations, even one as innocuous as this, as a slippery slope toward government price controls. And they're intent on using their considerable clout on Capitol Hill to stop any such bill...