Is the direct federal negotiation of drug prices a good idea? Consider the "non-interference clause" that currently prohibits such actions in Medicare Part D -- the federal program that subsidizes prescription drugs for seniors.
A repeal of the non-interference clause would result in a sharp increase in Medicare drug prices and a substantial decline in patient choice.
The non-interference clause empowers private insurers to negotiate drug prices with manufacturers and prohibits government officials from getting involved. So far, private insurers that offer Part D plans have had great success in keeping pharmaceutical prices down. The Congressional Budget Office observed that Part D plans have "secured rebates somewhat larger than the average rebates observed in commercial health plans."
Just look to the program's success.
Between 2004 and 2013, Part D cost $349 billion less than initial estimates. And premiums for the program are roughly half of the government's original projections.
These unprecedented results are largely due to Part D's market-based structure. Beneficiaries choose from a slate of private drug coverage plans, forcing insurers to compete to offer the best options at the lowest price.
Nearly 9 in 10 enrollees are happy with their Part D plan. A full 90 percent of enrollees say that their plan is easy to use and that their prescription spending would be higher without Part D coverage.
Doing away with the non-interference clause would disrupt the program.
For starters, the move "would have a negligible effect on federal spending." According to the CBO, to achieve any significant savings, the government would have to follow through on its threats of "not allowing [certain] drug[s] to be prescribed."
In other words, the government would drop some drugs from Medicare's coverage to save money.
That would be a raw deal for patients. The average Part D plan provides access to more than 95 percent of the top 200 Medicare Part D Drugs.
Should Part D plans drop medicines from their formularies to cut costs, Medicare Part D as we know it would cease to exist. And this coverage disruption would send America's 44 million Part D enrollees scrambling to maintain access to the medications they need.
Patients who rely on drugs that are dropped from their Part D formularies will be forced to pay for them out-of-pocket. Others could be forced onto new therapies entirely. Facing higher out-of-pocket spending, some patients could abandon their treatment regimens.
And when patients stop taking their medications, their conditions worsen and overall healthcare costs rise.
In other words, the President's reform would backfire -- threatening patients and sending health expenditures through the roof.
Peter J. Pitts, a former FDA Associate Commissioner, is President of the Center for Medicine in the Public Interest.
