Using Medicare’s Clout

When he testified before Congress on Wednesday about Medicare’s shaky future, Treasury Secretary John W. Snow dutifully declared that the new prescription drug benefit had little to do with the retiree medical program’s financial woes. “The principal culprit here is the rising cost of healthcare,” he said, obviously hoping to deflect blame related to a prediction by the Medicare board of trustees that the program will go bust by 2019. That’s seven years earlier than projected a year ago. The trustees blame both increasing health costs and the drug benefit.

What’s more, following Snow as a witness was whistle-blower Richard S. Foster, the chief actuary of Medicare. Decrying what he called “inappropriate” and “unethical” behavior, Foster reiterated his charge that Tom Scully, head of the Medicare program until December, had prevented him from sharing with lawmakers his estimates of the real cost of the drug benefit. The Bush administration now says the benefit will cost $534 billion, rather than $400 billion, over the next 10 years.

Had Congress received Foster’s estimate before it voted, the flawed drug benefit would probably have been torpedoed by fiscal conservatives. Now that the complicated, almost 700-page-long Medicare bill is the law of the land, Congress needs to get the price of the benefit down for both taxpayers and beneficiaries before it goes into effect.

There is one fast, easy fix available to Congress: Repeal the prohibition on the Medicare administrator directly negotiating prices with drug companies. No one has a hard figure on exactly how much the government would save, but the powerful drug companies and their allies in Congress had plenty of reason to fight tooth and nail for a ban on negotiating. The best plan to follow would be that of the Veterans Affairs Department, which saves about 70% on the average wholesale price of brand-name drugs. The VA hands out virtual monopolies on categories of drugs to companies that come in with the lowest price, creating a huge incentive to offer a bargain.

Legalizing drug importation is another measure that Congress should reconsider. But reducing the price of U.S. drugs would help solve that problem, while keeping seniors’ drug payments within the country and making the drug benefit somewhat more affordable.

Ultimately, lawmakers will need to tackle the overall costs of medical care, including Medicare. But allowing Medicare to exercise its considerable bargaining clout is a first big bite, enough to ask in the current political climate.