Democrats Opt For Socialism Over Success

The gravely-voiced Senate Republican leader of my youth (when Republicans actually stood for spending restraint), Everett Dirksen, famously retorted to Democrats’ budget busters: “A billion here, a billion there, and pretty soon you're talking about real money.”

His words came to mind when I saw this article from the Associated Press.

A lawmaker's inquiry could slightly increase the cost of the Medicare drug benefit if its results are publicized, congressional auditors said Tuesday.

Rep. Henry Waxman, D-Calif., has asked several insurers sponsoring Medicare drug plans to submit information about price concessions they wring from drug manufacturers. That pricing information is given to the Centers for Medicare and Medicaid Services, but cannot be disclosed.

Waxman's request has pharmaceutical companies worried, though he has not said what he would do with the information once he gets it.
The Congressional Budget Office estimates that disclosing the discounts means the cost of the drug benefit would likely increase by less than $10 billion over a 10-year period, and possibly much less.

In “Democrats Opt For Socialism Over Success,” AEI’s Scott Gottleib explains.

Medicare’s new program relies on networks of private drug plans, all competing to offer attractive benefits and discounted drugs in order to sign up new members. Most of the health plans have enrolled millions of members, and they have used this purchasing clout to extract deep discounts from the drug makers, translating into cheaper health coverage for Medicare members….

Rest assured, the Waxman dispatches wont push the plans off the cliff, so do not expect near-term impacts. But disclosing this commercial and confidential data could slowly erode the competitive activities that enable the Part D plans to save consumers' money and the new benefit program to lower drug costs.

Competition between the plans to lower costs turns on the negotiations that take place between the health plans and drug makers, and the ability of a drug maker to offer a preferred health plan more favorable pricing, often bundling together different drugs in one negotiation, without having to offer the same price to everyone else. This kind of price discrimination enables health plans use leverage and dealmaking to extract the lowest price for the panels of drugs that are most suitable to their members.

Disclosing the price breaks would probably quash the ability to work these bundling deals, which are at the heart of many discounts. With all the prices made public, every plan will get the same deal regardless of what they are willing to offer. You can bet the public price they are offered will be higher than the private deal they might have been able to cut.

The irony is, by all measures, that this competition is working for consumers. Why would Washington want to abate it?

The Medicare program agrees that disclosing the price breaks would undermine the ability of health insurers and pharmacy benefit managers like Caremark Rx and Medco Health Solutions, who also administer drug plans, from obtaining discounts.

The program cites an FTC analysis concluding that whenever competitors know the actual prices charged by other firms, tacit collusion and thus higher prices may be more likely. Separately, the Congressional Budget Office said a proposal to disclose the price data would add $40 billion over 10 years to the cost of the Medicare drug benefit….

In Washington, the only health care businesses that continue to get honest funding by Congress are the ones that do not work. As soon as something turns a profit, Congress looks to take it away. The fear about Part D was always that the drug program would devolve into price controls, thus destroying incentives for research and development as European governments have done.

Ironically, the politicians working the hardest to hobble the successful Part D plans are those like Waxman who are also advocating a universal health care system. Given the political track record they are laying, what health care venture is going to ever trust them? If Waxman succeeds, Part D will be added to a long list of cautionary tales for health companies contemplating work with Washington.