With Dems in power, Part D could get a makeover
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CHICAGO -- The Democratic landslide in last week's midterm elections raises the specter of federal regulation of drug prices via changes to Medicare's new prescription drug benefit -- a move that could lower costs for seniors and squeeze pharmaceutical and health insurance industry profits.
With Democrats in control of both houses of Congress, they are almost certain to seek passage of price control measures in that legislative body. And there are enough Republicans who supported price-control measures in the past that bills will gain momentum next year, analysts say, meaning members of Congress who vote against them will feel the wrath of seniors in the 2008 election.
Shares of most major drug makers and health insurers fell last week on concerns over tougher regulations on prescriptions. Democrats have said many of these firms have reaped huge sales and profits from the new drug benefit -- money that could have been passed on to taxpayers in terms of savings or seniors in terms of richer drug benefits.
The law creating the Medicare Part D drug benefit, added in 2003, did not allow the Medicare program to negotiate prices directly with manufacturers, as the U.S. Department of Veterans Affairs does. The VA is known for winning price concessions from drug companies from direct negotiations.
Not only did Democrats favor such direct negotiations, but some influential Republican senators such as presidential aspirant John McCain of Arizona also supported the idea. Mr. McCain could be a critical vote for the new but ultraslim Democratic majority in the Senate.
A nonpartisan study has shown costs are more than 10 percent higher by having private insurers involved in the benefit coverage rather than having the government administer the program on its own.
"The Democratic Party's takeover ... shifts the policy landscape for health-care providers," Kemp Dolliver, analyst with investment bank Cowen & Co., wrote in a report Wednesday. "The Democrats will put Medicare Part D 'in play' by proposing removal of the clause of the Medicare Modernization Act of 2003 that prohibits the federal government from negotiating drug prices directly with manufacturers."
Not to be underestimated, however, is the clout of the pharmaceutical industry, which contributes heavily to campaigns of both parties. And President Bush, a Republican, would have the authority to veto any legislation while his appointees, who run the Centers for Medicare & Medicaid Services, can "drag their heels" on implementing provisions for negotiating directly with drug makers, Mr. Dolliver said.
At the very least, however, Democrats have won power to hold hearings about the profits that drug makers, health insurers and pharmacy benefit firms have made since the Medicare benefit became widely available to seniors this year, analysts predict.
These Democrats say insurers, pharmacy benefit managers and drugstores have the ability to pass along more savings, and bills already are being pushed to foster more transparency in price negotiations. Analysts also have mentioned Walgreen Co. as a potential congressional probe target because generics are popular with seniors and drugstores mark up prices of generics.
But the health-care industry argues that the private sector does get good prices because dozens of health plans and pharmacy benefit firms are able to play the drug makers off of one another in a free market system for better prices. These companies also say consumers have more choices because dozens of private health plans offer the drug benefit, which allows for more choice and creates price competition among the various benefit plans.
"This is the first time in history of passage of any government program where the actual costs were less than the estimates at the time of passage," said Karen Ignagni, chief executive officer of America's Health Insurance Plans, a trade group and lobby. "The government is benefiting because the costs are lower and beneficiaries are benefiting because [monthly] premiums were projected to be $38 a month and now they are $24 on average."
The drug industry also argues that regulating drug prices would hurt consumers and patients because it would harm drug makers' budgets for research and development. Pharmaceutical companies also say price controls could lead to supply shortages.
"We believe that Congress and the administration should carefully consider the impact that any legislation or regulation might have on pharmaceutical innovation," said Billy Tauzin, chief executive of the Pharmaceutical Research and Manufacturers of America, which includes Pfizer Inc., Merck & Co. and Abbott Laboratories among its powerful membership.
"America's pharmaceutical research companies lead the world in discovering new cures and treatments for patients," Mr. Tauzin added. "The new drugs that save patient lives today are a result of the billions of dollars and years of research and development that pharmaceutical companies invest."
First Published November 12, 2006 12:00 am