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Feb
13

Medicare drug costs – trigger for serious reform?

The announcement last week that the Medicare Drug benefit will cost $724 billion over ten years, instead of the Administration’s original forecast of $400 billion, may be the long-awaited trigger for fundamental reform. Perhaps this is wishful thinking, perhaps not.
Three recent reports from prominent media outlets present rather compeling arguments that the sticker shock may well cause Congress to rethink its approach to prescription drugs.
In an article labeling the issue “sticker shock and awe, the Christian Science Monitor reports that the price tag is “focusing the minds of many lawmakers” on confronting the rising cost of drugs in Medicare.
The San Francisco Chronicle quotes a Heritage Foundation spokesman who claims the drug cost issue, along with the seemingly unstoppable rise in other entitlement programs will “cast a shadow over the entire conservative domestic agenda.”
National Public Radio on Thursday featured a segment with Dan Schorr commenting on Medicare costs and the potential fallout from same.
Among the suggested fixes to the problem are the reimportation of drugs from Canada (a non-answer, as discussed in previous postings here) and the negotiation of prices by the government with drug companies. The former is no answer at all, but the latter may well offer some hope. Almost every other country negotiates directly with pharma manufacturers, and receives much better pricing than does Medicare. In addition, the US Veteran’s Administration negotiates drug prices directly and has done a very effective job in containing prescription drug costs.
While this may offer scant hope for commercial payers, it is important to recall that many physician, hospital, and ancillary reimbursement arrangements are based on Medicare rates (Workers’ comp fee schedules, DRGs, RBRVS, etc.). Therefore, it is possible that any Federal pricing standard would replace the much-maligned Average Wholesale Price as the basis for pricing drugs.
And that would be great news.


Joe Paduda is the principal of Health Strategy Associates

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