Private plans should set drug prices - Medicare

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As some lawmakers clamor for letting Medicare directly negotiate drug prices, Medicare’s chief said on Wednesday that the health program for the elderly could save more money by letting the private sector set prices.

Under the new Medicare law, the government is barred from directly negotiating prices. But the push to lift that ban gained momentum this month after estimates showed the Medicare drug benefit costing $724 billion over 10 years.

The new program will be available next year.

Medicare chief Mark McClellan released to reporters a letter from chief Medicare actuary Richard Foster that said the private health plans delivering the drug benefit to U.S. seniors would be able to bring prices down by 15 percent at first, and by 25 percent over five years.

Foster wrote that private drug benefit managers have a proven track record on negotiating good prices, and he added that the government in some cases had overpaid for drugs.

“Pharmacy benefit managers have had substantial experience with such efforts and have demonstrated their effectiveness for many years,” he said, adding, “The past experience of Congress and the Medicare program in regulating drug prices has not been reassuring.”

McClellan also said that although the Veterans’ Administration negotiates prices, it also restricts the number of drugs available in its health system.

Critics of McClellan’s position say the government should have the power to negotiate and leverage its buying power on behalf of the 41 million elderly and disabled Americans on Medicare.

Two Democrats, Massachusetts Sen. Edward Kennedy and California Rep. Henry Waxman, this week released a study that estimated that direct negotiations could save $190 billion over a decade. 

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