Economists Opposed to Pharmaceutical Price Controls

If you click on the link, you will see the list of economists who signed this letter. I guess that we will find out if it helps the fight. The surprise to me is that this debate keeps on having to take place. (Ben Zycher at the Manhattan Institute did all the heavy lifting on this.)

We are deeply concerned about proposed legislation that would lead to negotiation of pharmaceutical prices by the federal government for the new Medicare Part D drug benefit.

Under current law, negotiations over prices are conducted between the pharmaceutical producers and private firms administering drug benefit programs for Medicare beneficiaries. With federal spending on pharmaceuticals is projected to grow to about $100 billion in 2007 — over 40 percent of the U.S. total —some policymakers now advocate federal negotiation of prices with the pharmaceutical producers, in order to use the large size and bargaining power of the federal government to achieve sharply lower prices.

Federal price negotiations would represent a policy change carrying significant risks for research and development investment in new and improved medicines. A substantial body of research shows that similar federal drug programs impose prices substantially lower than those negotiated in the private sector, and that such lower prices inevitably will reduce research and investment in new and improved medicines. This slowdown in pharmaceutical innovation will yield highly adverse effects upon future patients in terms of reduced life expectancies.

We urge Congress not to support negotiation of drug prices by the federal government.



Anonymous Anonymous said...


"Although the bill would require the Secretary to negotiate with drug manufacturers regarding drug prices, the inability to drive market share via the establishment of a formulary or development of a preferred tier significantly undermines the effectiveness of this negotiation," explained Paul Spitalnic, Director of the Parts C and D Actuarial Group in the Office of the Actuary. "Manufacturers would have little to gain by offering rebates that aren't linked to a preferred position of their products, and we assume that they will be unwilling to do so."

Spitalnic continued: “The actuaries expect that the Part D plans will continue to be the source of meaningful negotiations with manufacturers as they will continue to have the authority to establish formularies and define a preferred tier. We would not expect H.R. 4 to have any effect on these negotiations or the prices that are ultimately paid by Part D."

In a January 10th letter on H.R. 4, the Congressional Budget Office (CBO) noted: “CBO estimates that H.R. 4 would have a negligible effect on federal spending because we anticipate 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 PDPs under current law.”

“Part D drug plans produced greater-than-expected savings by competing for Medicare beneficiaries and aggressively negotiating with drug companies,” said Leslie V. Norwalk, Acting Administrator of CMS. “Strong, competitive bids and informed beneficiary choices are bringing down premiums, without government interference in drug price negotiations.”

Earlier this week, Health and Human Services Secretary Michael O. Leavitt noted that the most recent Part D budget estimates show that payments to Part D plans are projected to be $113 billion lower over the next ten years. “Importantly, of the $113 billion reduction, $96 billion is a direct result of competition and significantly lower Part D plan bids,” Norwalk added.

According to the CMS Office of the Actuary, the estimates of costs for the Medicare Part D prescription drug benefit for the FY 2008 budget cycle show that net Medicare costs are now expected to be 30 percent less -- $189 billion lower -- than originally predicted when the benefit was created in 2003. In addition, based on strong, competitive bids by health care plans for 2007, average monthly premiums for the basic benefit will be approximately $22 for beneficiaries, down from $23 in 2006. The original estimate for 2007 premiums was $38.

Moreover, while there are currently over 23 million Medicare beneficiaries receiving drug coverage through Part D prescription drug and Medicare Advantage plans, plans negotiating prices with drug companies and pharmacies cover about 241 million people, or 80 percent of the population. Indeed, these are the same companies that negotiate on behalf of members of Congress for their prescription drugs.

“The bottom line from the news today is that beneficiaries are paying less in premiums and taxpayers are seeing billions of dollars in lower costs, without the need for government to interfere and reduce access or convenience for beneficiaries,” concluded Acting Administrator Norwalk.

1/11/2007 6:38 PM  

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