Huffpost Politics
Andrea Stone Headshot

Obama's Plan To Cut Medicare Costs Lets Drug Companies Off The Hook -- Again

Posted: Updated:

WASHINGTON -- In laying out his framework to cut the deficit, President Obama appears to have abandoned a campaign promise he reneged on last year in order to get his health care reform bill passed: using the buying power of the federal government to negotiate lower prescription drug prices for Medicare.

While introducing his proposal, on Wednesday, to trim $480 billion in health care costs as part of $4 trillion in cuts over the next 12 years, he did address the issue, saying he planned to "cut spending on prescription drugs by using Medicare’s purchasing power to drive greater efficiency.”

But HuffPost interviews with experts familiar with the administration’s vaguely described plans say they doubt the president intends to resurrect the politically charged idea he touted on the stump in 2008. Then, he advocated giving Medicare the same leverage enjoyed by the Veterans Administration, which negotiates directly with drug companies to get the best price for veterans in its health care system.

Instead, Obama would take a bite out of drug company profits by requiring them to give rebates to 9 million low-income elderly or disabled people who qualify for both Medicare and Medicaid. According to the bipartisan Fiscal Commission, the move would save $7 billion in 2015 and $49 billion through 2020.

The federal government could save $14 billion each year if it would model Medicare’s five-year-old prescription drug program after the VA's, according to a new analysis in a soon-to-be published article in the journal Health Economics.

But that isn’t going to happen any time soon, said University of Minnesota political scientist Lawrence Jacobs.

“The logic from last year extends to today,“ said Jacobs, co-author of Health Care Reform and American Politics: What Everyone Needs to Know. “The strategy is to prevent early and united opposition with temporary deals cut with stakeholders to induce their participation.”

The stakeholder, in this case, is the Pharmaceutical Research and Manufacturers of America (PhRMA), which represents drug companies.

In 2009, Obama campaigned to take on PhRMA by bargaining for lower Medicare prescription drug prices and allowing cheaper drugs to be imported from Canada and Europe. The drug companies and their Republican allies in Congress lobbied hard and spent millions to block those provisions from being included in the 2003 law that created the Medicare Part D program.

Neither provision ended up in the Affordable Care Act signed into law last year either.

The administration dropped them in order to secure PhRMA’s support for the bill. The pharmaceutical lobby pledged to save the government $80 billion but threatened no deal if those proposals stayed in. By giving drugmakers, doctors and other stakeholders a seat at the table, the administration avoided the fate of Bill and Hillary Clinton’s health care reform plan in 1994.

“Cutting deals was a way to lock in early enthusiastic supporters, recruit supporters -- like PhRMA -- and delay others from coming out in opposition,” Jacobs said. “If the opposition had been early and united, reform opponents would have turned public opinion sooner, conservative Democrats would have been more reluctant to sign on, and the bill would have failed or been less liberal.”

If Obama were to revive drug price negotiation now, Jacobs said, PhRMA would lead the charge to repeal the new health care law.

Not that PhRMA welcomed the president’s budget-cutting plan with open arms.

“Unfortunately, the President’s approach to reducing our deficit fails to consider the impact on the entire policy tapestry –- local and federal -– that influence our industry’s current and future health,” said PhRMA CEO John Castellani, who also attacked proposals to speed generic medicines to market and improve efficiency and accountability in the Medicaid program for the poor.

“Implementing government price controls in the Medicare prescription drug program would not achieve better patient care, cut the deficit, sustain the development of future medical advances or grow the economy,” he said in a statement.

But Judy Feder, a senior fellow at the liberal Center for American Progress, said the Obama administration has shown more than enough deference to drug companies.

“They got off easy in the original law” passed last year, she said. “There are more savings to be had.”

Austin Frakt, a Boston University health economist who co-authored the forthcoming article in Health Economics, wrote that Obama’s plan has “got nothing to do with leveraging Medicare’s purchasing power.” If his “statement about ‘purchasing power’ of Medicare means anything for the Part D program,” he wrote, “it’s something neither he nor the Fiscal Commission has specified yet.”

Frakt looked at Medicare and VA data from 2009 and found that the VA's health system paid 40 percent less for prescription drugs than Medicare plans did. There is a caveat, however: the VA’s list of covered drugs included just 59 percent of the 200 most popular drugs prescribed. Medicare plans covered about 85 percent of the most-used prescriptions. Yet while veterans have fewer choices in terms of covered drugs than seniors do, if Medicare shrunk its list of approved drugs and got the same prices as the VA did in 2009, the savings that year to the federal government would have been $14 billion.

Frakt calculated that shrinking the list of covered drugs under Medicare would cost beneficiaries the equivalent of $405 “of value per year associated with the loss of choice of drugs.” But because the change would mean annual savings to the government of $510, seniors' premiums could be reduced by $405 to balance out the added cost and Medicare's bottom line could still come out ahead.

Any way you add it up, though, Frakt admits it’s “politically unlikely” an administration battling with Republicans just to keep the government open has the stomach to revisit the issue anytime soon.

Jacobs agrees that the time isn’t right.

“Drug negotiation is exactly what PhRMA most feared,” Jacobs said. “Hitting that now will put PhRMA into opposition mode. This is in the cards but for down the road, once the new (health care law) is in place.”