WASHINGTON — With millions of seniors facing premium hikes for their Medicare prescription plans, Democrats say they have a solution: Use the government's massive buying power to bargain for rock-bottom drug prices. The Department of Veterans Affairs does it for 5 million patients, they point out, so why not Medicare with its 43 million?
Medicare already sets rates for hospitals, doctors and medical equipment such as power wheelchairs -- as well as drugs administered in doctors' offices. It was only the Republicans' ideological commitment to the private sector that led them to bar the government from negotiating discounts with drug companies, Democrats contend.
But the VA model may not be readily adaptable to Medicare, some independent experts say. And policy differences among Democrats, along with the Bush administration's opposition to government price-setting, may further complicate the task of reaching a goal that Democrats have set for themselves when they take over Congress in January.
In addition, newly announced discounts by drug companies could have an impact on the Democrats' effort before it gets started. At least one major manufacturer is offering help to seniors who have trouble paying for their drugs.
"From a rhetorical perspective, Democrats may feel like they gain a lot with this issue, but there are many substantive hurdles that the government faces in trying to negotiate prices," said Dan Mendelson, president of Avalere Health, a consulting firm that tracks the Medicare prescription program.
"If you look historically at the government's experience in trying to regulate prices, it's poor."
VA's lower prices
Although costs for the Medicare drug program are lower than the government originally projected, there is evidence that prices could be lower still. A recent Consumers Union study of the prices charged in South Florida for six widely used drugs found that the Veterans Administration's average prices were 54% lower than Medicare's.
"Medicare is overwhelmingly the largest purchaser, and it's ridiculous for Medicare not to get the best deal of all institutional purchasers," said Ron Pollack, executive director of the advocacy group Families USA. The VA's experience shows what the potential could be, he added.
Yet applying the VA approach to Medicare may prove difficult. For one thing, Medicare is much larger and more diverse.
VA officials can negotiate major price discounts because they restrict the number of drugs on their coverage list. Instead of seven or eight drugs for a given medical problem, the VA list may contain three or four. If a drug company fails to offer a hefty discount, its product may not make the cut.
For example, VA beneficiaries can get Zocor for high cholesterol, but not Lipitor. In all, the VA covers about 1,300 medications. By comparison, the most popular Medicare plan -- AARP MedicareRx -- covers about 4,300.
But VA patients who want drugs that are not on the department's list must go outside the system.
In other words, the VA offers lower drug prices, but fewer choices.
American consumers have repeatedly resisted efforts to save money on medical care by restricting choice. Health maintenance organizations, for example, were once seen as the answer to rising healthcare costs, but millions of people rejected the approach, saying they wanted the freedom to choose their doctors.
One prominent advocate of government-negotiated prices has had a change of heart. Tommy G. Thompson, President Bush's first Health and Human Services secretary, once expressed regret that he hadn't been given the power to bargain.
But in a recent interview he said: "This plan is working much better than ever anticipated. When you've got a law that is working well in the federal government, why change it?"
If Medicare had the legal authority to negotiate prices, some experts predict it would do well in categories of drugs where there are lots of choices, such as blood pressure pills. But for new or cutting-edge drugs, a manufacturer could have the upper hand. A company could launch a television ad blitz to pressure Congress into raising Medicare prices.
"For categories of drugs that are not competitive, my guess is the manufacturer would not cave in on prices," said economist John E. Calfee of the business-oriented American Enterprise Institute. "Those are the drugs that have defied price controls."
Other experts say it wouldn't be that easy to push Medicare around.
"The VA had to resort to a preferred drug list, but I don't think that Medicare would have to restrict its list very much because it is such a huge purchaser," said Dr. David Blumenthal, a professor of medicine and public health at Harvard University. "Medicare's power in the marketplace is such that I think every manufacturer would have to take its prices."
Two possible paths
House Democrats have promised action in the first 100 hours of the new Congress to give Medicare bargaining power. One poll showed that 77% of Americans supported the idea.