Among the flurry of final orders issued by the now and forever ex-President Clinton was a waiver allowing Maine’s Medicaid program to let anyone buy drugs through Medicaid, even if they aren’t eligible for or enrolled in the program.
The gimmick: Under the waiver, non-Medicaid participants would pay a membership fee to buy drugs at a lower price, subsidized not by state or federal funds but by drug companies who under federal law have to rebate at least 18 percent of their price to the Medicaid program or face being barred from every federal health program in the country.
Maine is not the first state to seek such a waiver or to resort to the federal hammer after claiming for the past year that it didn’t want to impose price controls, but merely wanted to negotiate a fair discount in exchange for bulk purchases. The Clinton administration gave Vermont a similar variance on Nov. 3, timed right before the election.
A number of states are poised to follow suit, including California, Florida and Wisconsin. At present, these states would use general revenues to pay for the program or have tried to force pharmacies to come up with the minimal difference between Medicaid and the market price.
String enough states together and you get national price controls for Medicare. Remember, the 18 percent discount is not concession designed to generate business. It’s a rebate extracted in 1990 by Congress in lieu of price controls and only then in exchange for allowing Medicaid patients to have immediate access to all new drugs for at least one year. Congress can raise the price control to any level it wants, and there already are bills in the works to force companies to provide government programs a 50 percent rebate.
Of course, the real goal of the waiver movement is to build political support for such policies. No real savings or health benefits will flow from the waivers. In the short run, Medicaid waivers will drive up prices for seniors and others who have drug coverage in the private sector. Indeed, after the 1990 Medicaid rebate program was enacted, because of the size of the Medicaid market, many drug manufacturers sought to minimize the impact of the rebates on their businesses by raising drug prices to hospitals and private health plans. Secondly, states have evaded the open-access part of the rebate deal by requiring doctors to beg bureaucrats for approval prior to prescribing new drugs or limiting the number of prescriptions they pay for. So poor seniors will be forced to pay out-of-pocket for important medications in any event.
In the long run, the waiver movement would lead America’s health-care system down the path already taken by European countries, including Germany, the health-care Valhalla favored by many on the Left.
Germany first tried to clamp down on drug spending with global budgets, where doctors are given a fixed amount to spend on drugs. Second, it has begun using protracted price negotiations to delay access to new drugs. A review of 22 breakthrough drugs approved in Europe since 1986 found that patients in France, Germany, Belgium, Greece and Portugal had to wait on average three years or longer for the medicines to become available after they were approved for marketing.
But those two policies are not enough. Germany doesn’t just want to control drug costs by controlling consumption; it wants to do so by killing drug development altogether. And so Germany has reference pricing that cuts the reimbursement price of certain blockbuster drugs to an older generic price simply to save money, and without regard to the relative effectiveness or benefit to the patient. It plans to do that with Norvasc, a top-selling anti-hypertension drug even though the generic version is known to be less safe and requires more doses.
Since patients pay the same, the reference price won’t matter. But it sends a signal that innovation will not be rewarded (and once again presumes American consumers will foot the bill for Germany’s unwillingness to pay its fair share for research and development). Why work on or introduce new drugs only to see their prices chopped to generic levels right after they enter the market?
Unfortunately, the German pricing model is what the waiver folks have in mind. Extend price controls to the best and newest treatments using the lowest prices you can find on Earth: Medicaid, Canada, Mexico, Uganda, wherever, and apply them to as many people as possible.
The last thing we need is the Bush administration jumping on the bandwagon to turn Medicaid into a Price Club for prescription drugs. Stop the waiver movement now or wave good-bye to medical progress.
Robert Goldberg is a senior fellow at the National Center for Policy Analysis, based in Texas.