Medicare Part D and Competition

Medicare Part D, passed by a Republican-controlled Congress and signed into law by President George W. Bush in 2005, was hailed as the hallmark of “compassionate conservatism.” With the stroke of a pen, Bush gave millions of Medicare recipients access to prescription drug insurance programs.

The news media at the time was replete with stories of seniors facing bankruptcy or even death because the price of drugs they needed were out of their reach. Many private, supplemental Medicare insurance policies had prescription drug benefits, but they were spotty in coverage and pricey in cost.

In stepped Washington with Part D. Minimum standards for private policies were enacted. Policyholders could keep their old benefits, even those that failed to measure up to Washington’s standards, if they chose to do so. The new Part D coverage was hailed as a life saver for millions of elderly, and for many, it was.

There was only one catch, and it remains a costly one: Medicare is forbidden by law from negotiating prices with the drug industry.

Yes, you read that correctly: Medicare, the biggest provider of health services in American, can’t negotiate bulk prices with one of its biggest suppliers.

One of the main authors of the Part D legislation was Rep. Billy Tauzin, a Louisiana Republican who chaired the House Energy and Commerce Committee which was had jurisdiction over the bill. He fought long and hard to forbid Medicare — and, by extension, the American taxpayers — from negotiating with the drug industry for better prices. When passage of the bill was assured, he announced his retirement from Congress; soon after that, he began a five-year stint as president of Pharmaceutical Research and Manufacturers of America (PhRMA), the industry’s powerful trade association.

Tauzin retired five years from PhRMA in 2010, but not before protecting the Medicare negotiation ban and even extending its reach in 2009, as part of health care reform. Early health care reform legislation targeted drug costs for up to $80 billion in savings, primarily resulting from price negotiations and legalization of drug imports from Canada. Tauzin and his army of lobbyists killed any chance of that as the price of the industry supporting overall reform efforts.

Now in Washington there’s a new effort give Medicare the ability to negotiate prices with the drug industry. Legislation introduced by Sen. Amy Klobuchar, D-Minn., would give Medicare the same negotiating rights as Medicaid, the health program for the poor, and the Veterans Administration have long had — which yielded great benefits for patients and taxpayers. Some studies estimate annual savings could be as much as $24 billion.

Earlier this week, Sen. Tim Kaine, D-Va., announced he would be cosponsoring the legislation. Good for him.

Now they need to get to work on Sen. Max Baucus, Finance Committee chairman, to move the bill ahead. But don’t hold your breath; Baucus has long-standing ties to — you guessed it — the drug industry and its deep, deep wallet.

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