02/20/2013 03:17 pm ET Updated Apr 22, 2013

Menendez Case Highlights Need for Medicare Reform

The controversy over Sen. Robert Menendez, (D-NJ), and his Florida ophthalmologist friend and donor Dr. Salomon Melgen may be a teachable moment. The FBI's investigation of Menendez's use of Melgen's private jet is a microcosm of the larger problem our country faces: how difficult it is to cut the federal deficit when Americans exploit government largesse by using friends in high places to keep the faucet of federal funds flowing.

Sen. Menendez is in hot water for flying to the Dominican Republic with Melgen, allegedly to visit prostitutes. Although Menendez recently repaid Melgen the cost of travel, controversy swirls over whether it was unethical and whether Menendez intervened inappropriately to resurrect his friend's port security contract with the Dominican Republic.

Meanwhile, the FBI has raided Dr. Melgen's office seeking records related to his "thriving" medical practice. "Thriving" may be an understatement. Reports are that Melgen, a retina surgeon, is being investigated for more than $8 million in Medicare fraud.

News reports indicate that the FBI investigation of Dr. Melgen stems from concerns that his billings for the use of the expensive Lucentis drug for macular degeneration were four times the usual worth of a vial of eye medication. My wife is a retina surgeon, so I know about the reimbursement incentives created by Medicare.

Medicare reimburses injected drugs at the cost of the drug plus a percentage. Drug companies provide secret cash rebates to doctors. Doctors also get perks, like credit card points, the more they spend on drugs. The entire system incentivizes doctors to use the most expensive drugs, all of which leads to a costly Medicare problem.

Of course, there is nothing wrong with a doctor seeing many patients and choosing to use an effective drug. However, if the FBI determines that Dr. Melgen used Lucentis, broke it into smaller doses and charged Medicare for the full dose, or used it with every patient that walked into his office, or injected it into eyes without macular degeneration, including prosthetic eyes, then the FBI can and should bring the hammer down on Melgen.

I am confident that the FBI will do their job. What we must learn is if and how Sen. Menendez intervened in an investigation of Dr. Melgen on these same issues by the Centers for Medicare and Medicaid Services (CMS) a few years ago. Hopefully, both the Senate Ethics Committee and the FBI will investigate whether and how Sen. Menendez pressured CMS to drop its investigation of Dr. Melgen. If the CMS investigator found wrongdoing and was pulled off the case due to political pressure, then the facts on this must be disclosed and the guilty parties must be held responsible.

Our nation is in a financial crisis largely driven by rising health care costs, and eye care medication, strange as it may seem, is a perfect example of this problem. Lucentis was found to be the single largest expenditure in Medicare's pharmaceutical budget in 2010. Another drug, Avastin, works just as well for $50 per dose as Lucentis does for $2,000 per dose.

It is obvious that Congress can change the incentives to doctors, like paying the doctor per injection rather than paying them based on a percentage of cost of the drug injected. More, doctors must consider the cost of drugs and drug companies cannot just assign drugs any price for Medicare coverage. These are the basics. The U.S. has some of the world's highest drug costs and it's probably the only developed country in the world to allow unlimited use of Lucentis.

Congress hasn't acted on obvious reforms thanks to the lobbying of the drug industry. This is tragic and costly to our nation. What would be even worse is if a senator blocked investigations of fraud in the use of expensive drugs.

Our nation is in peril because of our financial status. It's time we took corrective action.

Gary Shapiro is president and CEO of the Consumer Electronics Association (CEA)® the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the New York Times best-selling books, Ninja Innovation: The Ten Killer Strategies of the World's Most Successful Businesses and The Comeback: How Innovation Will Restore the American Dream. His views are his own. Connect with him on Twitter: @GaryShapiro.