Appeared in the East Texas Review
It seems like such a good idea. The government has gotten into the business of administering prescription-drug insurance plans through the Medicare Modernization Act of 2003. But it turns out the government already buys some prescription drugs … for the Veterans Administration. Why not model the new program after the older one, reap the benefits of the combined market clout and achieve savings through uniformity? That's what many lawmakers are asking.
Unfortunately, it doesn't work this way. Drug companies make price concessions to veterans they won't make to even the largest prescription benefit managers (PBMs) with which they negotiate.
Under rules set by Congress, to sell drugs to the VA, companies must offer each drug at a price that "represents the same discount off a drug's list price that the manufacturer offers its most-favored nonfederal customer under comparable terms and conditions." The medication must be offered "at a discount of at least 24 percent off [the] nonfederal average manufacturer price (NFAMP). An excess inflation rebate is also required, equal to the percentage by which the price increase for [the] drug has exceeded the consumer price index (CPI) in the prior period."
The manufacturer must make all of its drugs available through the Federal Service Schedule for any of its drugs to be eligible for reimbursement under the VA and Defense Department health systems, the Public Health Service (including the Indian Health Service),
the Coast Guard, and the various state Medicaid programs.
Why do drug companies even bother? The VA represents only about 2 to 3 percent of their market so they?re not losing too much money on the deal. The VA also serves as a training ground for new doctors, and the sales allow drug companies to expose these new doctors to their medicines. The VA operates a closed system, which means there is little risk the drugs will be resold. And drug makers want to maintain a good relationship with the government.
Obviously, none of these factors apply to the Medicare program. Even if they did, it wouldn't be a good deal to model Medicare after the VA. For one thing, the VA offers veterans fewer drugs about 93, compared to more than 130 for most PBMs. And the drugs it does offer are not exactly top of the line.
A study by Professor Frank Lichtenberg of Columbia University found that the majority of the VA formulary's drugs are more than eight years old and more than 40 percent are 16 years old or more. Just 19 percent of all prescription drugs approved by the FDA since 2000 are available to veterans; only 38 percent approved during the 1990s are.
In many cases, veterans must try a drug that comes close to the one they need and prove that drug doesn't work before they can get the drug they truly need. And in almost every case, the VA imposes an automatic one-year hold on new medicines while it "studies" the effects. These are drugs approved by the Food and Drug Administration the most rigorous testing regimen on Earth for use by all Americans.
Is this any way to treat our veterans? Is it a system we want to graft on to the whole of Medicare? More importantly in the big picture, is this a way to save money? Is it cheaper to force the 41 million Americans who are eligible for the Medicare drug benefit to use medicines that are approximately what they need rather than specifically what they need in the name of saving a few bucks by buying in bulk? Experts say these savings come at the expense of the patients we're trying to help. Forcing patients to accept lower-priced, less-effective drugs can lead to higher total drug spending because doctors then need to prescribe more drugs. Beyond that, it could add to total program costs by leading to more hospitalization and physician visits related to using less-than-optimal medications.
We hear a lot of half-truths with regard to drug pricing. California Bay Area Democrats in Congress recently released a report that said that if Medicare drugs could be purchased through the VA system, the government could reap savings of up to 75 percent. But the study deliberately omitted plans that allow patients to pay a fixed low price for all the drugs they need. It also didn't mention that fewer drugs are available through the VA system or that drug companies simply cannot afford to make those drugs available at those prices through the Medicare plan.
In other words, it's as my grandmother always said: a half-truth is a whole lie.
Peter J. Pitts is director of the Center for Medicine in the Public Interest and a former Associate Commissioner at the FDA.