Insight, analysis & opinion from Joe Paduda


Fixing health reform – Part Three, reducing costs

So, you want to get serious about reducing the cost of entitlement programs? How does $25 billion a year, or a quarter-trillion over ten years sound?
Does it sound even better if there’s no increase in taxes? How about if there’s no reduction in services? And what if beneficiaries didn’t have to pay any higher fees, or suffer a reduction in benefits?
What’s the catch?
It would require one simple change in Federal law – allow the Secretary of HHS to negotiate prices with pharmaceutical manufacturers.
According to an analysis done three years ago, that’s exactly what would happen.
When Part D legislation was passed back in 2003, the Feds were expressly forbidden to negotiate drug prices for Part D. Despite a long and successful history of the Feds doing just that, Congress decided that the private market would do a better job of controlling cost than the gubmint. In actuality, “A report by Families USA, which looked at the top 20 drugs prescribed to seniors, found that VA prices were substantially lower than the cheapest Part D plans, with a median price difference of 58%.6”
That ‘VA’ is the Veteran’s Administration, a federal government entity.
The study indicated “An annual savings of over $20 billion could be realized if FSS [Federal Supply Schedule] prices could be achieved by the federal government for the majority of drugs used by seniors in 2003-2004…”
And that’s in 2003 dollars. Recall that brand drug prices increased over 9 percent last year alone; In 2010 dollars, we’re easily above the $25 billion per year number for savings.
In a 2006 House analysis, a report “released by Democratic staff on the House Government Reform Committee showed that under the new Medicare plan, prices for 10 commonly prescribed drugs were 80% higher than those negotiated by the Veterans Department [emphasis added], 60% above that paid by Canadian consumers and still 3% higher than volume pharmacies such as Costco and”
I don’t know why the Bowles-Simpson deficit commission didn’t consider this in their just-released deficit reduction strategy. After all, Part D alone is responsible for $15 trillion in ultimate deficit dollars. You would think this would be enough to get liberals, conservatives, Druids, Neanderthals, John Birchers, hippies, Greens and Flat-earthers all clamoring for action.
You would think…

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Joe Paduda is the principal of Health Strategy Associates




A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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