May 05, 2004, 9:12 a.m.
Drug Dealings
Democrats had it right before.

By Sam Dealey

The first phase of the much-touted prescription-drug reforms kicked in on Monday, and leading Democratic lawmakers opened fire on the program as a terrible waste of taxpayer money (never mind that they pushed bills estimated at twice the cost). Chief among their concerns is a provision that bars the federal government from negotiating directly with the pharmaceutical industry for lower prices.

"The Republican bill does nothing about escalating drug prices," said liberal Sen. Edward Kennedy (Mass.). "Republicans even had the nerve to include a specific prohibition on any role by the federal government in any negotiation on drug prices." Senate Minority Leader Tom Daschle (S.D.) called it an "indefensible provision" and said that "to deny the federal government from negotiating lower prices for prescription drugs for seniors is quite amazing to me."

And Sen. John Kerry, who skipped the prescription-drug vote entirely last November, now regularly rails against the provision on the campaign trail. "Seniors often pay higher drug prices because they do not have the leverage to negotiate more affordable drugs," the Democratic presidential candidate explained. "The only possible explanation for prohibiting Medicare to negotiate for better prices is that this is a special interest provision that increases pharmaceutical industry profits."

That Kerry should be lecturing anyone on special-interest canoodling is remarkable in itself. The senator has accepted more special-interest money over the years than all of his present colleagues. But it's particularly disingenuous in the case of Medicare reform. After all, just three years ago, Kerry — and Daschle, and Kennedy, and 30 other Democratic senators — advocated precisely the same policy.

In May 2000, Daschle submitted the Medicare Expansion for Needed Drugs (MEND) Act, the seminal language of which concerned "noninterference" by the government in the marketplace. "In administering the prescription drug benefit program established under this part," it read, "the [Health and Human Services] Secretary may not ... interfere in any way with negotiations between private entities and drug manufacturers, or wholesalers ... [or] otherwise interfere with the competitive nature of providing a prescription drug benefit through private entities."

The provision was one of Daschle's key selling points. "Our plan mirrors the best practices used in the private sector," Daschle said then. "For beneficiaries in traditional Medicare, prescription drug coverage would be delivered by private entities that negotiate prices with drug manufacturers. This is the same mechanism used by private insurers."

Nor was that the only time Senate Democrats sought to bar the government from directly bargaining with drug manufacturers.

In October 1999 and July 2001, Democratic Sen. Ron Wyden (Ore.) and sometime Republican Sen. Olympia Snowe (Me.) introduced legislation that expressly prohibited the government from interfering in the prescription-drug marketplace. "If we have Medicare acting as the buyer for all the medicine, it may be possible for the government to negotiate a discount," Wyden told his colleagues from the Senate floor in 1999. "What troubles me about that approach is we will have the cost passed on to someone else who might be 26 or 27 — maybe a divorced mom who has a couple of kids....

"There is a right way and a wrong way to deal with that issue," he continued. "The wrong way, in my view, is to have a price-control regime and produce cost-shifting with intervention by government."

Lastly, there was President Bill Clinton's 1999 Medicare Modernization Proposal. In explaining the bill to Congress, Nancy-Ann Deparle, chief of the Health Care Financing Administration, took great care to note that "the drug benefit managers — not the government — will negotiate discounted rates with drug manufacturers, similar to standard practice in the private sector. We want to give beneficiaries a fair price that the market can provide without taking any steps toward a statutory fee schedule or price controls."

But that's precisely what Democratic leaders now advocate. Separate pieces of legislation sponsored by Daschle and Wyden — and with the support of 20 colleagues, most of whom formerly opposed government pricing interference — are now aimed at reversing the prohibition.

Of course, there's a very good reason for keeping Washington from negotiating prescription-drug prices. With Medicare's market demand for many prescription drugs estimated at 40 to 50 percent — and in some cases, as high as 95 percent — the arrangement has the makings of a textbook example for monopsony. Pharmaceutical companies and brokers, eager to earn the de facto stamp of approval that Medicare participation carries, would have no choice but to meet bureaucrats' hardball pricing demands.

With profit margins squeezed, there are fears that the pharmaceutical industry might shift the cost burden to the privately insured. More likely, however, the industry would seek to save money by cutting back on the more ambitious research and development of "miracle" drugs. The end result is that, as happened in Europe and Canada, America's pharmaceutical industry would be composed entirely of manufacturers rather than innovators. That doesn't do anyone any good.

Democratic leaders once understood the stakes involved in permitting the government to interfere with the market. Indeed, when the Senate overwhelmingly passed its version of the prescription-drug legislation last June with 76 votes, not a peep was raised by these Democrats — all of whom supported the bill — about the non-interference language. Now, sadly, out-of-power partisans in an election year hope to score political gain at the expense of Americans' health.

— Sam Dealey is a writer living in Washington, D.C.