House Democrats are pushing a bill to require Medicare to negotiate drug prices. So far, so good. But in what appears to be a bow to the political clout of Big Pharma, the bill does not authorize Medicare to drop from its approved list drugs on which manufacturers fail to offer good deals.
This is like Wal-Mart telling its suppliers "we're going to use our bargaining clout to get from you the lowest prices for our customers -- but regardless of what price you offer we'll still carry your product in our stores." What kind of incentive is that?
The Department of Veterans Affairs gets a 25 percent discount on drug prices for veterans because if a drug company won't give a big discount, Veterans Affairs won't include the drug in its plan. Medicare recipients will only get these kinds of savings if Medicare can do the same -- walk away from a drug manufacturer that won't deal.
The way to do this without denying seniors drugs of their choosing would be for Medicare to set up its own drug plan to compete with those of private insurers. Medicare would subsidize any plan, so seniors wanting drugs not on the approved list would still have access to them. But seniors wanting the lowest drug prices would join Medicare's own plan. It would have the cheapest drugs because the plan's size would give it the most bargaining power and because it would only include drugs that manufacturers offered at a deep discount.
The current Democratic bill is calculated to make everyone happy. It allows Democrats to tell seniors and the all-important AARP that they're forcing Medicare to negotiate with drug companies. And it also allows Democrats to turn around and tell Big Pharma not to worry because the negotiations won't have any real teeth in them. Their drugs will still be approved, regardless of price.
But the bill won't make anyone happy. It won't deliver seniors real drug discounts. And Big Pharma will still fight it. Drug manufacturers see any move toward negotiations, even one as innocuous as this, as a slippery slope toward government price controls. And they're intent on using their considerable clout on Capitol Hill to stop any such bill.
Even if the bill makes it to the Senate, new Senate Finance Chair Max Baucus is unenthusiastic about Medicare negotiating drug prices, and has twice opposed similar measures. In the unlikely event the bill makes it to the president's desk, he'll almost certainly veto it. And the Democrats don't have the votes to override the veto.
House Democrats should come up with a bill with real teeth in it -- one that forces drug companies to offer real discounts. Even if it didn't pass this time, a vote on it would at least show whose side its opponents were on. And it would give fodder for Democrats to run on in 2008 -- including a Democratic presidential candidate.
Robert B. Reich is co-founder of The American Prospect. A version of this column originally appeared on Marketplace.
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