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The ills of fixing drug prices.

ITEM: Writing in the Philadelphia Inquirer for December 6, Karen Davenport railed that Congress has "left Medicare without the power to do much about high or unfair drug prices." Davenport, the head of health policy for the Center for American Progress in Washington, D.C. [run by President Clinton's former chief of staff John Podesta], continued: "During the 2006 elections, candidates across the country promised to give Medicare more market muscle by giving Medicare the power to negotiate drug prices." After suggesting several methods of "bargaining with drug makers," Davenport stressed: "However it does so, Medicare should take care of drug prices."

ITEM: The Oregonian for November 28 called for Congress to authorize Medicare "to negotiate with pharmaceutical companies for lower medicine prices." Drug companies, editorialized the paper, "toss out several unconvincing arguments against allowing Medicare to negotiate with them. One is that it would create what [Health and Human Services Secretary Michael] Leavitt darkly calls 'government-run health care.' Well Medicare has successfully provided "government-run health care' for many years. So has the Veterans Administration, which successfully bargains for lower drug prices."

ITEM: An Associated Press article in the San Diego Union-Tribune for December 8 reported: "Seniors strongly support a plan to let the federal government negotiate drug prices on behalf of Medicare beneficiaries, a new poll suggests.... About 85 percent of seniors want to let the government use its buying power to negotiate drug prices, the Kaiser Family Foundation reported Friday."

CORRECTION: It's increasingly hard to distinguish among the talking points issued by the Democratic Party and its allies, leftist editorials advocating more government interference in the healthcare industry, and supposedly straight reporting.

Not surprisingly, after decades of pushing the line that more government is good for what ails you, and that cheap or free healthcare is an American "right," liberals who ask most of the poll questions usually get the responses they seek.

Several questions asked by the Kaiser Family Foundation poll followed this formula: "I'm going to read you a list of things some people have said about allowing the federal government to use its buying power to negotiate with drug companies to try to get a lower price for prescription drugs for people on Medicare, and I'd like you to tell me whether you agree or disagree with each of these statements. Some people say that allowing the federal government to negotiate with drug companies for lower prices [means such and such, depending on the particular question]. Do you agree or disagree?" Yes, most of those questioned opted for negotiations, which they were told would lead to lower prices.

Yet, despite the leading language, fully 60 percent of all of those questioned also agreed that negotiations "will lead to government price controls on prescription drugs." That actually is remarkable considering the underlying assumptions of the questioning. That newsworthy response, however, was decidedly not included in the wire-service story or highlighted by the poll promoters.

We wonder what the result might have been if the question went something like this: "Some have noted that everything the government runs is less efficient and more expensive than when it is handled by the private sector. Do you agree or disagree with putting bureaucrats in Washington in charge of the availability of your medicine?"

If Americans were reminded of the truth that price controls over pharmaceutical drugs will lead to less medical innovation and fewer choices, the poll would likely be skewed rather differently.

As it happens, existing government negotiating practices with healthcare providers and drug makers are not the fabulous models suggested by advocates. Indeed, as noted by Gail Wilensky, former administrator of the Health Care Financing Administration, when the government does act as a monopsony purchaser, or sole buyer, it does not "negotiate" prices, it "sets" them. "Government officials, inevitably operating on imperfect information," points out analyst Greg D'Angelo in the Hawaii Reporter, "demand a price that does not reflect market conditions, and suppliers either concede and accept the artificial price or walk away from the table by not bringing valuable drugs to the market. Thus, government fixes prices."

Moreover, the Food and Drug Administration is already holding back innovation in the drug industry, keeping needed medicines off the market for years. The FDA, as former Scripps Howard editorial director Jay Ambrose writes, is "risk-adverse to the degree that much of its testing is redundant and pointless, an exercise in delay for delay's sake, as critics have repeatedly pointed out."

The claims about how well the Veterans Administration negotiates for lower drug prices don't hold up either, when one looks at the complete picture. The government's price leverage with the VA system and Medicaid "is derived directly from its willingness to 'punish' patients if manufacturers do not comply with its demands," explained Edmund Haislmaier in the 2004 Heritage Foundation study Compromising Quality: The High Cost of Government Drug Purchasing. To exclude "a drug maker from a market if it does not make price concessions will certainly hurt the manufacturer, but it will harm the patients who need the drug more."

A recent study by economist Benjamin Zycher published by the Manhattan Institute for Policy Research shows that whatever saving appears to be realized by government negotiating will be more than offset by greater human suffering because of fewer new and beneficial drugs. There would inevitably be lower industry returns and a reduction in spending on research and development. The economist estimates, based on existing government data, that "almost 200 new drugs would go undiscovered over the next two decades as an indirect result of federal price negotiations."

Medicare already has a feeble track record in other areas of healthcare delivery, so the prospect of giving Medicare new powers to set drug prices is not reassuring. Currently, points out the Cato Institute's Michael Cannon in the New York Post, "The Medicare bureaucracy is somehow supposed to divine the correct prices for more than 7,000 distinct physician services in each of Medicare's 89 physician-payment regions (yep, some 623,000 separate prices). And--unlike market prices--these price controls don't automatically adjust to reflect the value of goods and services. As a result, quality suffers."

It's enough to make you sick.
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Title Annotation:Correction, Please!
Author:Hoar, William P.
Publication:The New American
Date:Jan 8, 2007
Words:1029
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