Friday, January 12, 2007

Contrasts and Contradictions in How Right- and Left-Wing Politicians Address Pharmaceuticals and Medicare

After actually being able to write about positive developments in health care on Health Care Renewal (see post here), it's back to business as usual.

The current debate in the US Congress about the how the Medicare (government single-payer insurance for the elderly and disabled) program pays for pharmaceuticals has brought out some interesting contrasts and contradictions on both sides of the debate.

Democrats, who now control Congress, are proposing a revision of the program. As reported by the AP (via the San Diego Union-Tribune),

Currently, private drug plans negotiate how much they'll pay for the medicine their customers take. But the legislation under consideration Friday would require the secretary of the Department of Health and Human Services to do so.

'It is clear Medicare can do better and we are insisting that they do so,' said Rep. John Dingell, D-Mich., the bill's author.

The Republican counter-argument was conveyed in a statement from the White House,

Government interference impedes competition, limits access to lifesaving drugs, reduces convenience for beneficiaries and ultimately increases costs to taxpayers, beneficiaries and all American citizens alike.

This argument against allowing the government actually negotiate what it pays for pharmaceuticals on behalf of American citizens is similar to that made by many conservative pundits. They often have characterized negotiation as virtually the same as price controls. For a sample argument from today's Washington Times, go here.

Of course, the Medicare program also pays for hospital and physicians' services. And for many years, the government has simply imposed fees on the latter. This is one major reason that primary care physicians' income has fallen farther and farther behind inflation (see post here). For my argument that this is a wooden-headed reimbursement policy, see previous posts here, here and here.

But I not recently heard any conservative commentators decrying government "price-controls" on physicians' fees, even as such controls are driving primary care physicians out of business.

So why are Republicans and conservatives so worried about the government negotiating what it pays for pharmaceuticals, while they are perfectly happy for the government to impose fee schedules on physicians?

On the other hand, while the Democrats have proposed "negotiation," they "would ban any attempt to limit the array of drugs available to Medicare beneficiaries by creating formularies. That stands in contrast to the Veterans Administration, which has lower prices for its beneficiaries but uses formularies that limit patient choice." How the government could effectively "negotiate" prices without the power to refuse to pay for drugs whose prices were too high is unclear. The Democrats also would leave intact a controversial ban on the re-importation of drugs from other countries.

A Washington Post article suggested why the Democrats did not go further,

They stepped back largely out of concern that the pharmaceutical industry would stall a complex change, denying them a quick victory on a top consumer-oriented priority, aides say.

They had reason to be wary: Despite years of lopsidedly favoring GOP lawmakers with campaign cash and other benefits, the drug lobby continues to wield tremendous power in the Democratic-controlled Congress. It also still has the backing of the White House: President Bush said yesterday that he will veto the Democratic proposal if it lands on his desk.

To strengthen their position, drug firms and their trade groups have been transforming their Washington operations by hiring top Democratic lobbyists to gain access to new committee chairmen, bolstering Democratic political donations and spending millions on public relations campaigns to overcome an image, indicated in recent surveys, that the industry puts profits ahead of patients.

Even longtime industry nemeses like Rep. Fortney 'Pete' Stark (D-Calif.), chairman of a House health panel, are impressed. 'They're pretty potent,' he said this week. 'They're not bush-leaguers when it comes to spending money and lobbying.'

This month alone, the Pharmaceutical Research and Manufacturers of America spent more than $1 million on full-page newspaper ads touting the success of the existing Medicare drug system.

Drug companies spent more on lobbying than any other industry between 1998 and 2005 -- $900 million, according to the nonpartisan Center for Responsive Politics. They donated a total of $89.9 million in the same period to federal candidates and party committees, nearly three-quarters of it to Republicans.

'You can hardly swing a cat by the tail in Washington without hitting a pharmaceutical lobbyist,' said Sen. Charles E. Grassley (R-Iowa), a key sponsor of the 2003 legislation that created the current program.

The drug industry lobbying effort started to tilt Democratic as soon as it was clear that Democrats were headed for victory in the midterm elections. The industry is working "to expand areas of contact, develop relationships with those who are in charge," said former senator John Breaux (D-La.), a lobbyist for the industry.

The political action committee of the drug company Amgen gave Rep. John Conyers Jr. (D-Mich.), the new chairman of the House Judiciary Committee, $8,500 during the 2006 election cycle, amounting to three-quarters of all its donations to him over the past decade. In the Senate, GlaxoSmithKline's PAC contributed $8,000 during the cycle to Sen. Kent Conrad (D-N.D.), the new Budget Committee chairman. That is more than the $6,000 total that the PAC had given to Conrad since 1997.

Helping lead the industry's charge is Breaux, the former senator, who is one of only two Democrats who played a role in drafting the 2003 bill. He said he plans to hopscotch the country holding public seminars on solving health-care problems, often in the states and districts of members of Congress who are pivotal to drug legislation. It is part of a program, called Ceasefire on Health Care, that is bankrolled by the drug company Pfizer and has featured speakers such as Sen. Blanche Lincoln (D-Ark.) and Sen. Gordon Smith (R-Ore.), who both sit on the Finance Committee.

'We need to get access to key Democrats now,' said former representative James C. Greenwood (R-Pa.), president of the Biotechnology Industry Organization, a prominent industry group.

So despite Democratic protestations that they are out to make Medicare "do better," whether the Democrats will end up much less cozy with the pharmaceutical and biotechnology industries than were the Republicans remains to be seen.

But all this talk about increasing industry access to the country's legislative leaders leaves out consideration of what sort of access the real people who are affected by this legislation have.

It's yet another example of concentration of power in health care, with the health care professionals, and the particularly the patients on the short end.


Anonymous said...

Stripped of the breathless partisan baying back and forth there may be a legitimate objection to the drug price negotiation bill passed by the House today: it won't work.

The Congressional Budget office has stated for the record that "The secretary would be unable to negotiate prices across the broad range of covered Part D drugs that are more favorable than those obtained by (the plans) under current law." 501535~CBO_Faults_Democrat_Drug_Plan.html

Alain Enthoven of Stanford University agrees, and explains why.

Enthoven says

"empowering the government to negotiate with pharmaceutical companies is not necessarily equivalent to achieving lower drug prices. In fact, neither economic theory nor historical experience suggests that will be the outcome."

Here's his rationale:

"People often confuse market power with bargaining power. The thinking goes, the larger the share of the market that the buyer represents, the greater the bargaining power and thus the lower the prices negotiated. That line of reasoning fails with drugs however because the seller is frequently a monopolist with an exclusive patent. This means the seller cannot be threatened with replacement by a substitute. Instead, the only threat is that the two sides fail to agree and the drug is withheld from the market. Rather than market share, a party's bargaining power is determined simply be the ability to say no - to walk away from the table without an agreement."

Keep in mind that because of patent protections less than half of all drugs have generic versions. This means there is no alternative to those drugs if the manufacturers simply refuse to reduce their prices.

IMO, a rational negotiating strategy for HHS would be to tell the drug companies if they don't give the Medicare better prices for drugs that have generic equivalents, their drugs will be excluded from coverage. However, it's my understanding from reading a draft of the the law that HHS is prohibited from taking that very negotiating position.

If that prohibition remains in the final bill as passed by the House, then IMO it's political crapola, designed to force HHS to take an action that must fail, and then criticize them for failure.

Mike Feehan

Roy M. Poses MD said...

Remember, that's the same Enthoven who was so keen on breaking up the "physicians' guild" as a sure-fire way to cut medical costs. (See our post here:
Enthoven was one of the major supporters of managed care, and of handing over as much control of health care as possible to managers and bureaucrats. And see where that has gotten us.

In his remarks above, Enthoven displays a narrow view of competition among pharmaceuticals. It is true that many drugs do not have exact generic substitutes.

On the other hand, many drug classes contain multiple brand-name drugs, which often are very similar. Why the manufacturers of, for example, all those SSRIs, ACE inhibitors, atypical psychotics, angiotensin receptor blockers, etc, could not be induced to be more competitive is not clear.

Anonymous said...

Doc, aside from your suggestion that Enthoven can't be right about this because he was wrong about other things before, you make a fair point about the availability of near-equivalent drugs within therapeutic classes.

But I think the important question remains: How likely are manufacturers to decide that refusal to discount will actually affect their volume? There does not seem to be any meaningful consequence to a drug manufacturer who refuses to be more competitive. Medicare cannot exclude their drugs. The effect of a higher price is largely absorbed by the insurance - at least, up to the donut hole, which covers most expenditures for most people.

Maybe, someday, if the House Bill gets thru the Senate, Conference Committee, and is signed by the President, we'll get to see what actually happens.

Mike Feehan

Roy M. Poses MD said...

Well, that's an argument for a formulary isn't it, an option that the Democrats (and of course, the Republicans) rejected.
Or what about simply refusing to pay more than a given amount for a particular drug. The manufacturer could accept that amount, or balance bill the patient.
Remember, I'm a doc, and Medicare tells me exactly what they will pay for my services, and if I want more than that, tough luck.
So I don't have too much sympathy for the argument that Medicare must pay whatever a drug company chooses to charge, without argument or negotiation.
And I don't have too much sympathy for the the argument that any attempt by the government to negotiate drug prices would have dire results, given that the government has mandated physician reimbursement amounts (under Medicare) for a long time now.

Anonymous said...

"Well, that's an argument for a formulary isn't it"

Yes, it is. That the House Bill prohibits a formulary is reason to wonder whether negotiation can work - or whether negotiation is so enfeebled by this prohibition that results will be quite limited, particularly for drugs which have no generic equivalent.

". . . an option that the Democrats (and of course, the Republicans) rejected."

I don't care who rejected it. Partisans may care - I do not. I care about whether drug costs can be brought down. Your comment brings us back to the first sentence of my first post above,

"Stripped of the breathless partisan baying back and forth there may be a legitimate objection to the drug price negotiation bill passed by the House today: it won't work."

Provided the Senate passes a similar bill, the conference committee agrees on a final version that both houses accept, and the President actually signs it - we shall see.

Mike Feehan