The Make-Believe Drug Benefit

Don’t hold your breath waiting for a meaningful prescription drug benefit for Americans on Medicare, despite the passage of bills by both houses of Congress that claim to create just that. It’s bad enough that even the more generous benefit passed by the Senate would be too small and hopelessly complicated to administer, and that the two bills may never be reconciled. That’s not the worst of it.

The fatal flaw of the latest political push is that the result will be little more than a taxpayer-financed windfall for the pharmaceutical industry. Neither bill contains provisions for controlling costs, meaning that, as prescription drug prices continue to rise at double-digit rates, the promised benefits will be quickly outpaced by higher prices.

One of the ugly secrets of the pharmaceutical industry is that it charges higher prices to its most vulnerable customers. Medicare recipients without supplemental insurance are already charged far more than anyone else, because they pay for their drugs out-of-pocket and have nobody to bargain on their behalf. Other government and private health plans use their purchasing power to blunt drug prices. They also steer patients toward cost-effective drugs by refusing to pay full freight for expensive brand-name drugs, whose claims to extra effectiveness are often dubious.

The Veterans Affairs System, for example, bargains for steep discounts in drug prices, as do large HMO’s, most of which also have lists of preferred drugs called formularies. Likewise, Medicaid cannot be charged more for drugs than pharmaceutical companies’ most favored customers.

Since Medicare is the largest health program of all, it could easily use its purchasing power to get good prices and establish formularies of the most cost-effective drugs—if Congress would permit that.

But that is anathema to the pharmaceutical industry, which opposes any form of regulation in the Medicare program. And this industry usually gets what it wants. Long the most profitable industry in the U.S., it fields the largest lobby in Washington, with more lobbyists than there are members of Congress. It gives lavishly to political campaigns including that of the current President. While favoring conservative Republicans, the industry also supports key Democrats generously, such as Senator Joe Lieberman, D-Conn. Not surprisingly, neither the Senate nor House bills contain a hint of regulation.

The industry wants the increased sales that would result from a Medicare drug benefit free of limitations on prices or on the use of costly drugs that are no better than their cheaper alternatives. In short, it wants to continue to use vulnerable Medicare recipients as its major profit center. Drug companies would rather have no Medicare benefit than a regulated one. In addition to lower profits, they fear that regulations in prescription drug benefit would spread to other parts of the otherwise free-wheeling health care system.

If a drug benefit were offered directly within the traditional Medicare program, as the Senate bill permits, it could be regulated at some future time, even though the bill does not provide for that now. To close off that possibility altogether, the House bill calls for a drug benefit to be administered only through multiple private insurance companies. That would fragment and privatize drug coverage so thoroughly that it could never be regulated like the rest of the Medicare program.

But consider what will happen without regulation. Medicare recipients will be left with something like a voucher that will almost immediately lose its value as drug costs continue their dizzying climb. If the benefit is administered through private insurance companies, recipients will be left to navigate a notoriously treacherous market to try to find a package they can afford, which will quickly become impossible. Either insurers will raise premiums out of reach, or they will offer deals so skimpy that they are not worth buying. Medicare recipients will end up paying for the profits of these companies, essentially middle-men, out of their monthly premiums.

The President and Congress know all this. That is why the final bill—if there ever is one—is not scheduled to take full effect until 2006, when the President expects to be safely re-elected. Many Democrats, for their part, have decided to appear enthusiastic, whether they are or not, so that they will not be accused of blocking a Medicare prescription drug benefit—one of their signature issues stolen from them by the President. This is political posturing of the most cynical sort. Both sides are willing to pass a make-believe bill and postpone the reckoning until after the 2004 election. That way they can claim credit for what will turn out to be little more than a giveaway to the pharmaceutical and insurance industries.

Marcia Angell is a senior lecturer in the Department of Social Medicine at the Harvard Medical School.