Today on CNN’s American Morning, host John Roberts asked former Senate Majority Leader Bill Frist (R-TN) why Republicans didn’t “allow the government to negotiate with drug companies” when they passed Medicare Part D. Frist argued that “having competition and competition for prescription drugs” saves more money than “having the government come in and having a mandated price:
Well initially it was because the Congressional Budget Office said there’s absolutely no savings because what you want to have are people who are competing- 2 million against 5 million against 4 million against 3 million people- get them around the table and that would bring the cost down. And indeed they were right. Right now there’s about 30 percent savings this year, 20 percent savings last year, by having competition in competing for prescription drugs instead of having government coming in and having a mandated price undercut—that no one’s going to come to the table.
But as Dr. Bernadine Healy, the Health Editor for US News & World Report, explained, the debate isn’t about “mandating prices,” but allowing for fair competition. Permitting Medicare to use its market power to negotiate drug prices on behalf of its 46 million enrollees could have a great impact on drug prices. According to a report by economist Dean Baker, “if Medicare were to negotiate on behalf of its beneficiaries, it would be able to substantially reduce” the growth rate in drug prices and “negotiate prices that reflected actual production costs“:
Such negotiations should in principle allow for very substantial reductions in price, because the pharmaceutical industry sells prescription drugs fro prices that are typically more than 200 percent above their cost of production. This means that if a large buyer, like Medicare, were to demand substantial discounts, then the industry could still make a profit on its sales, even if it charged much lower prices than it does at present.
In fact, “in surveying the prices that various countries pay for drugs, the CBO found costs ranged from 35 to 55 percent less than the prices paid in the United States,” suggesting that a single buyer can use its market clout to significantly lower costs. Baker concluded that direct negotiation could reduce drug prices by as much as 70 percent.
Frist, of course, has a long history of defending Big Pharma’s profits. In December of 2005, First and House Speaker Dennis Hastert inserted a provision in the Defense Appropriations bill that granted vaccine manufactures near-total immunity for injuries or deaths. The provision, which was essentially written by vaccine-industry lobbyists, was inserted in the dead of the night, after House and Senate conferees had agreed the provision would not be included in the bill.