MELISSA BLOCK, host:
The incoming Democratic majority in Congress has promised to authorize the government to negotiate Medicare drug prices with manufacturers. Currently, the law expressly forbids the government to do that. The White House opposes the change, arguing that competition among private insurers lowers drug prices far more effectively than government negotiation could. NPR's Snigdha Prakash reports on what effect competition has had so far.
SNIGDHA PRAKASH: One way of judging whether seniors have been getting a good deal on their Medicare drugs is to look at how much money drug-makers are making on those drugs. Richard Evans, pharmaceutical analyst at Sanford Bernstein and Company says the new drug benefit has added between 1 and 1.5 percent to the industry's profits, or about $2 billion. That's mostly because companies can now charge the government higher prices for drugs used by the millions of people who get both Medicare and Medicaid, the government's medical program for the poor.
Until this year, Medicaid paid for their drugs. Now, Evans says, Medicare's Part D Program does.
Mr. RICHARD EVANS (Sanford Bernstein and Company): In Medicaid, discounts that the industry provided were about 30 percent, maybe a little bit higher. The Part D, the discounts are in the neighborhood of 10 percent.
PRAKASH: So, as those patients went from Medicaid to Medicare, the drug industry got a hefty price increase. The group Families USA measures the performance of private insurers another way. It compared how prices on the 20 drugs most frequently prescribed to seniors changed over six months, from November 2005, when seniors were choosing their Medicare plans to April of this year. The group's executive director, Ron Pollock, says virtually all the Medicare Part D insurers raised prices during that time.
Mr. RON POLLOCK (Executive Director, Families USA): For Fosamax, used for osteoporosis, 99 percent of the plans increased their prices. For Lipitor, more than 97 percent of the plans increased their prices.
PRAKASH: The median price increase, Pollock says, was about 4 percent, far outpacing the increase in the Consumer Price Index during the same time.
Mr. POLLOCK: And what that means is that seniors who live on a fixed budget and their Social Security checks only go up with inflation, these prices of drugs are rising quite a bit fast and so, over time, it means that these drug prices will be increasingly unaffordable.
PRAKASH: The insurers raised prices for seniors because the drug companies were charging more. Historically, price increases have accounted for almost half of the drug industry's profit growth. David Sho(ph), head of health-care research at the Prudential Equity Group, says the government is to blame for the fact that private insurers didn't get a better deal on Medicare drugs.
Mr. DAVID SHO (Head of Health-care Research, Prudential Equity Group): The government isn't really, really, really trying to save money, and it hasn't given the tools to the insurance industry to really, really save money.
The way you save money in health care is by limiting choice.
PRAKASH: That is by telling seniors the program will cover a very short list of drugs so that no matter who's negotiating, private insurers or the government, drug-makers are motivated to cut their prices to get on that list. Regardless, drug-industry analysts like Richard Evans are betting that the escalating cost of the Medicare drug program will force the next administration, Republican or Democrat, to negotiate lower drug prices. Snigdha Prakash, NPR News, Washington.