Nearly one year ago today, a bipartisan commission appointed by the president of the United States came up with a plan to keep Medicare financially stable, increase consumer choice and provide prescription drug coverage for all seniors. But when the president refused to support the plan his own commission devised, it left Congress with more sound bites than real solutions to the problems facing Medicare and millions of elderly Americans who need real Medicare reform.
One such sound bite is the so-called Prescription Drug Fairness for Seniors Act. The bill and its co-sponsor, Rep. Eleanor Holmes Norton, say it gives big discounts on prescription drugs for seniors. But in fact, the bill does not give discounts to seniors. It gives them only to retailers mainly drug stores, Internet pharmacies and discount outlets like K-Mart and Wal-Mart. It would do so by requiring pharmaceutical companies to sell to these private retailers at or below prices mandated by law for the government agencies that buy the most medicines. These agencies account for about 3 percent of total domestic pharmaceutical sales.
More important, the price-control bill does not impose price controls on the drug stores or require drug stores to pass the discount to seniors. Even if the bill offered seniors a direct pass-through of savings, they would not have access to as many new drugs in the future. In Canada, similar government price controls and other tools of socialized medicines delay access today to important existing drugs for seniors long beyond the date they become available in the relatively free market in the United States. If we import Canadian-style price controls, future research on medicines for seniors would be reduced because the incentives needed to conduct this costly research would be dampened. Some supporters of the Prescription Drug Fairness Act claim that one analysis found that price controls would reduce drug profits by only 3 percent. But that report has been disavowed and contradicted by the Congressional Budget Office, by hundreds of economists and Wall Street analysts who point out that, as in Europe, similar price controls led to a smaller drug and biotech industry.
And since America’s biotech and drug companies account for about 45 percent of globally important medicines, including many breakthrough drugs, that would regrettably mean fewer new medicines anywhere for seniors if this price-control bill were enacted even though the pharmaceutical industry would still do all the research it could despite reduced revenues as a result of price controls.
I receive many letters from seniors including many of limited means complaining about how much they spend on prescription drugs. So I understand why members of Congress would find it tempting to support a bill that would, on the surface, appear to reduce their drug bills. My daughter also suffers from a chronic illness that requires medications costing me thousands of dollars a year. I can afford these medications because I have health insurance that covers prescription drugs. My coverage gives me (1) help in paying for the medicines I need, and (2) the benefit of price discounts my health plan or insurer freely negotiates with individual drug companies and pharmacies that I, as an individual, could not. Coverage is the real solution, since it provides precisely the help seniors need. The price-control bill doesn’t provide coverage for a single senior.
Prescription drug costs will continue to rise as a part of health care spending because they will take the place of other types of often less effective and less cost-effective medical care such as that provided by hospitals and nursing homes. That means better and longer lives for all.
The Drug Fairness for Seniors price-control bill could undermine that future. There’s a better way to help seniors: by providing prescription drug coverage to ensure seniors’ access to the best of medicine both today and tomorrow.
Robert Goldberg is a fellow with the Ethics and Public Policy Center.