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Leavitt: Let Market, Not HHS, Set Medicare Rx Prices

Published on Fri Jan 28, 2005

Congressional leaders press for answers on who should wrangle with big pharma

Michael Leavitt, President George Bush's nominee to replace Tommy Thompson as Secretary of Health and Human Services, does not want the power to negotiate directly with pharmaceutical companies on behalf of Medicare beneficiaries.

Congress' failure to give the Secretary this power has proven to be one of the most controversial aspects of the Medicare Modernization Act of 2003, which created a prescription drug benefit in Medicare. Critics have charged that legislators gave in to the pharmaceutical industry, which was worried that the Secretary could use Medicare's huge pool of seniors and disabled people to negotiate big price breaks.

The Bush administration and its congressional allies, however, argued that prescription drug plans and Medicare Advantage plans could do a better job of offering seniors diverse and affordable options. Last month, however, Thompson said he wished Congress had given him the option of negotiating directly for lower prices.

In his Jan. 18 appearance before the Senate Health, Education, Labor, and Pensions Committee, Leavitt was pressed on this issue by Sen. Judd Gregg (R-NH). Gregg noted that both the Department of Veterans Affairs and the state of New Hampshire negotiate directly with pharmaceutical companies, but Leavitt was unconvinced.

"The best way to keep drug prices competitive is to have a rigorous and an active market, and the best negotiation would be between those who are providing the care and those who are manufacturing" the drugs, Leavitt told
Gregg. In situations in which the national government  such as through the VA or state governments "are the providers of care, it's an appropriate thing for them to be negotiating." But in general, Leavitt said, "I don't believe it's a good role for the national government to be the setter of prices, and if we become the so-called negotiator of prices we are actually setting prices, and the market does a better job of doing that."

Gregg, the new chair of the Senate Budget Committee, also pushed Leavitt on the overall cost of the Medicare drug benefit. He noted that predicted heavy use of employer subsidies, designed to encourage companies to continue to offer drug coverage, had pushed administration estimates of the MMA's cost almost 40 percent beyond the Congressional Budget Office's estimate of $400 billion over 10 years. "I'm wondering if the administration will be sending up to us directions on how to bring the program in line with the initial $400 billion estimate," Gregg asked.

Leavitt said twice that he could not answer Gregg's question, since he wasn't part of the administration's calculations. However, Gregg persisted: "Would it be your intention to implement" the MMA on the terms under "which it was passed, or would it be your expectation to exceed the original number of $400 billion?" he asked. Leavitt's answer: "It's been my practice as a manager to operate within my budget."

"That would be great," Gregg said.

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