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HillaryCare Comes Back

The disastrous Democratic Medicare drug plan.

Dec 25, 2006, Vol. 12, No. 15 • By ROBERT M. GOLDBERG
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Michael J. Fox made headlines for Democrats in the recent election campaign by promoting federal funding of embryonic stem cell research that the actor deems critical to finding a cure for Parkinson's Disease. Unbeknownst to him, his message was part of a massive bait-and-switch. That's because the Democrats also promised Medicare reforms that would have the effect of denying seniors access to new Parkinson drugs and of undermining investment in stem cell research--indeed, in all kinds of pharmaceutical research.

The Democrats' Medicare plan would allow the government to negotiate prices directly with drug companies. This, they argue, could cut prices enough for the government to pay for 100 percent of the prescription drug costs of every senior in America. The political appeal of this proposal is self-evident.

The Medicare legislation creating the prescription drug benefit that took effect in 2006 (known as Part D) prohibited the government from negotiating directly with drug or biotech companies in order to guard against price controls. Instead, pharmacy benefit managers--the same service organizations most health plans use--would negotiate drug prices, pay pharmacy claims, etc., while offering competing versions of the Part D benefit to seniors. Democrats and most policy experts predicted the new drug benefit would be confusing and unworkable, that seniors would fail to sign up, and that those who did would receive scant coverage as drug companies jacked up prices to cash in on sweetheart deals absent any government jawboning.

Liberal and conservative opponents of the Bush program both predicted that angry seniors by this fall would be headed to the polls outraged at the cost, complexity, and inadequacy of their new drug benefit. In fact, as the Washington Post reported (after the election), polls show 80 percent of those covered are satisfied with the plan. The plan covers 22.5 million people who previously had no prescription drug coverage. Another 9 million poor seniors have their entire drug costs covered, with fewer restrictions on choice than under the state or Medicaid programs on which they previously relied. Under the lash of competition, the cost of the program has been lower than expected--by a whopping $26 billion in 2006. Medicare officials believe the plan's average per-person subsidy will drop 15 percent next year to under $80 per month, even as the out-of-pocket costs of seniors continue to drop.

Unwilling to recognize the good news, Democrats have consistently pointed to the government-negotiated drug prices offered by the Department of Veterans Affairs as a model for what they would do with Medicare Part D. Ron Pollack, executive director of the liberal advocacy group Families USA (which supported a market-based approach to Medicare drug coverage when Democrats and President Clinton advanced it in 2000), has asserted, "Medicare is overwhelmingly the largest purchaser [of prescription drugs], and it's ridiculous for Medicare not to get the best deal of all institutional purchasers."

However, both the Congressional Budget Office and Medicare analysts estimate that the government could do no better than a private company in negotiating prices. So why do Democrats insist they can? Because they aren't proposing market-like negotiations but a combination of price controls and restrictions on what drugs seniors can use. In a word: HillaryCare.

Far from negotiating drug prices, the VA imposes them. Federal law requires companies to sell to the VA at 24 percent below wholesale price. If they won't, they are banned from selling medicines to Medicaid, Medicare, and the public health service. The VA demands even deeper discounts by creating a national formulary--a restrictive list of approved drugs for its patients. Companies that don't meet that additional discount don't make the list. Patients must get drugs from VA pharmacies instead of retail outlets. Patients who endure side effects from a formulary medicine--or who fail to respond to one--must submit themselves to an arduous and time-consuming bureaucratic process to gain access to any pharmaceuticals not on the list.

In opposing the Medicare Part D reform in 2003, Democratic senator Patty Murray stated that she "was unhappy at the prospect that this plan could tell patients with MS, Parkinson's disease, and ALS that they can't get the drugs they need because their plan will not cover them." Yet Azilect, the newest drug to treat the symptoms of Parkinson's disease, approved in 2006, is not on the VA drug list, though every Medicare Part D plan has adopted it. In delaying access to new medicines, the VA is no different from the national health services of Canada and Great Britain. Tysabri, a new drug for multiple sclerosis, is available under every Medicare plan. It is not on the VA drug plan.

That doesn't seem to bother Speaker-to-be Nancy Pelosi. She is readying a proposal to force Medicare to ratchet down prices for every drug now and in the future using the VA approach. Yet as former Medicare director Mark McClellan points out, the Stark proposal will perversely encourage higher prices. "You set a top price for Medicare or the VA, or demand a deeper discount than the private sector, and watch the drug prices increase and discounts disappear. Demand cost-effectiveness studies, and the drugs will be offered to Medicare last while the case is made to the private sector first. That's one reason lots of drugs are available to Medicare patients now, but not to folks in the VA system."

Indeed, the VA price controls take a toll on the health of seniors who depend on the veterans' system for their care. Frank Lichtenberg, an economist at Columbia University's Graduate School of Business, found that the majority of the drugs on the VA formulary are more than eight years old--just 19 percent of prescription drugs approved since 2000 and 38 percent of those approved from 1990-2000 have made it onto the VA formulary. None of the drugs regarded as priority medicines since 2000 by the Food and Drug Administration are on it either. Lichtenberg estimates that "the use of older drugs in the VA system may have reduced life expectancy by 2.04 months" per person.

If making the lives of seniors shorter and sicker isn't bad enough, the Democrats' price control plan threatens to devastate pharmaceutical and biotechnology innovation just as the failed Clinton drug- pricing scheme of 1993 would have. Back then, a federal Breakthrough Drugs Committee was envisioned that would evaluate a drug's cost effectiveness. In response, venture capital investment in biotech dropped drastically and the market valuation of the biotech industry plunged 40 percent.

Today, drug companies have over 1,000 partnerships with biotech firms. So among the first victims of the Democratic drug price-control scheme would be investors in the research Michael J. Fox also supports. That includes Merck, which just invested over $1 billion in a company run by Nobel Prize winners that developed a technique to suppress tumor growth common to stem cell therapy, and Eli Lilly, which is investing in a company called Suven that focuses on Alzheimer's, schizophrenia, depression, vascular dementia, and Parkinson's disease.

Speculative biotech research will be unsustainable under Democratic price pressure. Genzyme, whose drugs are always a target of Democratic anti-pharmaceutical show trials, just bought the rights to a Parkinson's clinical trial program of Avigen. Celegene, which is likely to be bashed for the annual $61,000 price of Revlimid (a treatment for multiple myeloma and other cancers of the blood system), is investing heavily in a promising source of adult stem cells that have been used to replace dopamine neurons in people with Parkinson's. It is hard to imagine how such research could be sustained in a system that would cut drug companies' revenues and sales in half.

So far, Republicans have been largely silent about the success of the new Medicare drug benefit, or about the harm likely to be caused by the Democratic proposals to dismantle it. One exception is Rep. Mike Ferguson, the New Jersey Republican serving on the House Energy and Commerce committee. Ferguson recently lost his mother to multiple myeloma, but not before Celegene's Revlimid allowed her three more years of life. For him, the issue is passionately personal: "Price controls of any sort not only hurt seniors," he says. "They hurt our children and grandchildren who suffer with Parkinson's, cancer and juvenile diabetes."

Some prudent Democrats have begun to hedge their bets. Incoming House Way and Means chairman Charles Rangel appears more interested in working with drug companies to expand their existing patient assistance programs, which help subsidize needy patients. Incoming Senate Finance Committee chairman Max Baucus, who supported the Medicare drug benefit, has agreed to hold hearings on government price negotiations but is cool to the idea.
For all the talk about the supposed virtues of the VA price controls, nearly 2 million VA beneficiaries have signed up for Medicare Part D. That's because the new plans give them access to medicines they can't get under the VA. Congressional Democrats should take note.

Robert M. Goldberg is vice president of the Center for Medicine in the Public Interest.