Medicare Part D, which passed as part of the “Medicare Modernization Act”:http://en.wikipedia.org/wiki/Medicare_Prescription_Drug%2C_Improvement%2C_and_Modernization_Act in 2003, gives seniors better access to life-saving medications. Although expensive, this program helps older Americans afford prescriptions whose prices have otherwise been increasing at twice the rate of inflation. Something had to be done.

h2. Flawed

Although the primary aims of giving seniors better access to medicines has been achieved, the law itself has two glaring problems.

First, some seniors are left out of any coverage at all in what has become known as the “doughnut hole.” Basically, when someone enrolls in a drug plan in 2007, this person pays a $265 deductible and 25% of total drug costs up to $2,400. After this total $2,400 cost for the year is exceeded (out-of-pocket expenses up to this limit are only $865), the person must pay _all_ drug costs beyond $2,400 up to $5,451. This is a problem because it leaves people that fall into this hole potentially out $3,916. Regardless of income bracket, if you fall into the gap, you have no options but to come up with this sum of money or go without medication.

Second, and equally insidious, is the inclusion of the non-interference clause, which prohibits the Centers for Medicare and Medicaid Services from negotiating drug pricing with pharmaceutical companies. While the non-interference clause does not prohibit private insurance companies that create drug plans from negotiating, the government has clearly been put at a disadvantage—artificially bound to pay higher prices despite buying in bulk for a huge number of seniors across the country. Some have rightly called this the “sweetheart deal.” It basically amounts to a handout to drug manufacturers and an artificial barrier in the marketplace, which is ironic given that Republicans—who normally champion free market principles—were behind slipping it into the final bill despite a majority of Senators (composed of Democrats and Republicans) opposing this clause.

When I first learned about these ludicrous restrictions, I was incensed. No other word better captures how wrong this sort of sly politicking truly is. One can further argue that the money lost from not being able to negotiate created the doughnut hole. Solve one and you can potentially close or eliminate the other completely.

h2. Clear proponents

Enter Senators Wyden (D-OR) and Snowe (R-ME). In a bipartisan effort, they proposed Amendment 3004, which aims to remove the non-interference clause and allow Medicare to negotiate pricing with drug manufacturers directly. The amendment was applied to a larger budget bill.

Senator Wyden, on March 15, 2006 stated[1] in very clear language the implications of allowing the government to negotiate prices on the millions of prescriptions being bought for seniors. Apparently, the major bug-a-boo surrounding this legislation (which had a majority of support in the _Republican_ Congress last year!), is the misconception that removal of the non-interference clause would allow HHS to set price controls and a single formulary. Per last year’s amendment co-sponsor, Senator Wyden, this is just not true:

bq. Let me repeat that to the Senate. The bipartisan Snowe-Wyden legislation at line 13 and line 14 includes a bipartisan statutory ban on price setting as an effort to control the cost of medicine. This is about using marketplace forces to hold down the cost of these drugs that are clobbering our older people. [...] I don’t see how anyone can oppose this amendment and, in fact, Secretary Tommy Thompson, the former Secretary of Health and Human Services, said in his last press conference that he just wished he had this authority.

Clearly, this amendment a good thing.

h2. Obfuscation

In response to the debate on Amendment 3004, Senator Grassley (R-IA) states:

bq. First of all, we heard the words “sweetheart deal” for drug companies. If drug companies had their way, they would want no formularies, which is what the Wyden amendment would require. These drug companies would want all drugs covered regardless of cost. So don’t tell me this is a sweetheart deal. If we didn’t have formularies like we would have if the Wyden amendment is adopted, then all drugs would be covered regardless of cost. Then they would not have to compete. But this legislation requires competition building upon the practices that we have used for the Federal employee health plan for 40 years. We patterned this legislation after that because that is what saves money.

bq. …

bq. It is an absurd claim that the Government will not be negotiating with drugmakers comes from the noninterference clause in the Medicare law. The noninterference clause does not prohibit Medicare from negotiating with drugmakers. What it does is it prohibits the Center for Medicare Services from interfering with these negotiations.

bq. To be clear, the noninterference clause is at the heart of the bill’s structure for delivering prescription drug coverage. This clause ensures those savings will result from market competition rather than through Government price fixing.

Where to start? There seem to be three huge problems with Grassley’s fierce language here.

1. His speech starts out nearly incomprehensible, but he seems to interpret negotiation of prices as removing competition from the market. Last I checked, capitalism revolved around negotiation between buyer and seller for a fair market value based on current supply and demand. Tongue in cheek: need we repeat Econ 101, Senator Grassley?

2. He correctly states that in its current form Part D prohibits Medicare from negotiating prices, but allows individual plans to do so. However, anyone who understands basic market principles knows bigger buyers have more clout. Take a look at WalMart[2]. Here lies the core of the argument of those for negotiation: greater efficiencies can be achieved with greater numbers. By allowing Medicare to directly negotiate prices, all medicare beneficiaries are pooled together creating a collectively larger buyer with more clout in the market place.

3. Grassley seems intent on associating removal of the non-interference clause with price fixing. Price fixing and allowing market forces to determine fair prices could not be at further ends of the same spectrum. The rabbit being pulled out of the hat here is named obfuscation.

h2. Deft conclusion

Despite the incoherent rambling of Grassley and the transparent “I’m in your pocket” vote by many Republicans, the “amendment passed”:http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=2&vote=00050, 54-44, with 2 abstentions. Because it never made it into law, though, the parent bill must have died.

The real kicker arises when people realize that the Pentagon and Veterans Administration both negotiate with drug companies for lower prices given their purchasing power for soldiers and veterans. The Costco phenomenon[3] perfectly parallels the economics at work here: If you buy in bulk, you get more bang for your buck. You wouldn’t walk into a Costco to shop for your family and buy toilet paper one roll at a time. The Pentagon knows this. The VA knows this. Why don’t our elected leaders? In essence, the non-interference clause forces such a restriction on the Department of Human Health and Services (HHS), who manages and administers the Medicare program.

Still, there is hope. On January 12, the House of Representatives “voted to send”:http://clerk.house.gov/cgi-bin/vote.asp?year=2007&rollnumber=23 the Medicare Prescription Drug Price Negotiation Act to the Senate for approval. This time, the legislation is contained within its own bill, and will not suffer at the fate of a doomed budget resolution. Sometime soon, the Senate committee in charge of the bill should submit it for a full floor vote. If and when that does happen and if it passes, it will be up to the President to sign for it.

Pass the word, and contact “your Senators”:http://www.senate.gov just as I have. If your Senator was in the Senate last year, you can see how (s)he voted on this issue by taking a look at “the vote on Amendment 3004″:http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=2&vote=00050 mentioned above.

fn1. All of these quotes come directly from the “public record of the Senate floor”:http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2006_record&page=S2165&position=all. The debate on Amendment 3004 starts in the third column.

fn2. While I hate WalMart with a passion, it truly has used its buying power to wrestle market prices lower. There exists no better example.

fn3. While I use the word “phenomenon,” Costco is hardly novel, but some of these East-coasters do not know what it means to purchase in bulk. I borrowed this apt metaphor from Senator Wyden.