The Magazine

HillaryCare Comes Back

The disastrous Democratic Medicare drug plan.

Dec 25, 2006, Vol. 12, No. 15 • By ROBERT M. GOLDBERG
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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.