Slippery Slope

After defeating about a dozen amendments, the Senate Finance Committee last night approved a bill that would allow, but not require, the administration to interfere in drug price negotiations between private drug plans and the pharmaceutical companies.

Chairman Max Baucus (D-MT) was criticized by members of his own party for offering what they said was a watered-down version of the bill that passed the House earlier this year to require HHS to negotiate drug prices.

But we should not be fooled by rhetoric. This would send us down the road to price controls and all of the attendant distortions they bring. And there is other mischief in the Senate bill, including requiring the disclosure of confidential price negotiation data (which would negate many of today’s deep discounts) and setting us down the slippery slope of government involvement in directing that drugs offered in Medicare must be deemed ?cost-effective.?

One amendment that went down to defeat is particularly puzzling: Offered by Sen. Pat Roberts (R-KS), it would have restored language prohibiting government interference in drug price negotiations that was introduced in an earlier Congress by former Senate Democratic Leader Tom Daschle and cosponsored by 33 Senate Democrats. The Democratic majority on the committee in this Congress voted it down.

Senate Majority Leader Harry Reid (D-NV) says that the Baucus bill could come up for a vote on the Senate floor next week. If it gets 60 votes, it would go to conference with the House.

But Congress is in dangerous territory. Seniors want to be assured that the price-negotiation bill would fulfill two goals: That it would in fact lead to cost savings and that it would not limit their choice of drugs.

This bill fails the test.

The Congressional Budget Office has said repeatedly, including in letters this week, that savings from the Baucus bill would be ?negligible.? That’s because the only way that negotiations can work is through volume buying and the ability to walk away from a deal if the price is too high. If the government walks, the drug wouldn’t be available.

As we reported in our Fact Sheet on Medicare Part D and prescription drug prices earlier this year, a Kaiser Family Foundation survey conducted in 2006 found that 85% of Americans support allowing the government to negotiate prescription drug prices for Medicare.

But support plummets when voters learn about trade-offs. Other surveys show that only 30% still support it when they learn that government negotiation would mean they could choose only from a limited list of government-approved prescription drugs. And only 28% of seniors believe that government would do a better job of getting low drug prices than the competitive marketplace.

This is yet another example of the list of legislative initiatives in this new Congress that display hostility toward the private market. It may seem like a small step, but this takes us in the very different direction of injecting much more government rather than patient control over health care decisions and limiting the choices that would be available in the future.


But we are, of course, undaunted in our determination to continue to fight for free-market ideas. And you can join us for three upcoming events to advance this conversation:

  • The Galen Institute and the American Enterprise Institute are co-hosting a major luncheon address on April 24 by Health and Human Services Secretary Michael Leavitt. He will describe the administration’s free-market vision to cover the uninsured, with a focus on the current debate over reauthorization of the State Children’s Health Insurance program. This is part of a health policy double-header at AEI that starts that morning with a presentation on ?Medicare’s Fiscal Future: Getting Worse? Getting Better?? beginning at 9:30 a.m. Watch this space for more details on how to register for either or both events.

  • And save the date for a luncheon on June 14 to be jointly sponsored by Galen and the International Policy Network. Mark McClellan will be our keynote speaker, followed by experts from both sides of the Atlantic discussing the question, ?Is there a role for markets in health care?? The forum will be in Washington, D.C., from noon to 3 p.m. on Thursday, June 14, so mark your calendars now and watch for more information on how to register.

  • And join us for the Consumer Health World Spring conference April 30 though May 2 at the Venetian Resort Hotel Casino in Las Vegas. The Galen Institute is a co-host of this conference, and we have a limited number of discount passes, so please contact me to save money on your registration fee. This is the place to be with the who’s who of the CDHC movement, so please join us!

Grace-Marie Turner


  • Universal Health Care Choice and Access Act
  • The golden age of medical innovation
  • Leviathan on the Right
  • The VA drug pricing model: What senators should know
  • Consumer and physician readiness for a retail healthcare market

Source: Senator Tom Coburn, 04/10/07

Senator Tom Coburn, the Senate’s only physician, described his comprehensive health reform proposal at an event hosted on Tuesday by The Heritage Foundation, which also featured commentary from the Galen Institute’s Grace-Marie Turner and AEI’s Joe Antos. Under the Universal Health Care Choice and Access Act, the current tax exclusion for job-based health insurance would be redirected to consumers as a tax rebate of $2,000 for individuals/$5,000 for families to buy their own health insurance. The plan would also open the market to other purchasing options by creating an interstate market for insurance. And he would provide new mechanisms and incentives for Medicare beneficiaries and Medicaid recipients to obtain private health insurance. Other key pieces of the Senator’s proposal include initiatives to promote healthy lifestyles and disease prevention and incentives to increase the use of information technologies in the health sector.
Full text (pdf):

Author: John Calfee
Source: The American, March/April 2007

?We are in a golden age of medical innovation,? writes Jack Calfee of the American Enterprise Institute. ?In this new era, the most important advances in treatment often come from products which have been on the market for a while but whose properties were not completely understood until intensive research after the drug was introduced,? he writes. The cancer drug Avastin, for example, ?is a mini-pipeline all by itself, with some 20 clinical trials underway for different cancers or stages of cancer.? This era is also characterized by ?competition from follow-on or me-too drugs [that] has been raised to extraordinary levels of scientific sophistication,? writes Calfee. He warns of ?threats that can end a golden age,? including price controls, intellectual property, FDA regulation, marketing restrictions, and litigation.
Full text:

The Manhattan Institute’s Peter Huber warns in a commentary for The Wall Street Journal that we are at risk of losing the battle against tomorrow’s germs with today’s stultified and bureaucratic drug research and testing techniques. ?What we need is a robust, flexible, innovative, diverse and fragmented portfolio of drug companies, sinking a lot of new capital into highly speculative ventures, almost all of which will lose money, with just one or two ending up waved though by regulators, eagerly paid for by insurers, vindicated every time by judges and juries, lauded in the mass media, and so spectacularly profitable for investors that they crowd in to fund more.?
Full text:

Author: Michael D. Tanner
Source: Cato Institute, 02/07

In his widely-quoted new book, Michael Tanner of the Cato Institute provides a ?scathing look at how the rise of conservatives who believed big government could be used to further the conservative cause ultimately undermined the legacy of traditional conservatives and shattered the Republican revolution.? Tanner’s chapter on health care argues that ?[b]ig-government conservatives appear to accept the idea that government involvement in the health care system is, if not desirable, inevitable.? As a result, they have increasingly embraced proposals like individual mandates, managed competition, and increased regulation ?that take us several steps down the slippery slope to national health care.?
Full text:

Author: Greg D’Angelo
Source: The Heritage Foundation, 04/11/07

The Veterans Administration (VA) model of price negotiation ?could not easily be applied to Medicare and would prove inadequate to meet the needs of the rapidly growing Medicare population,? writes Greg D’Angelo of The Heritage Foundation. ?While the VA’s pricing practices do not consist of price-fixing mechanisms alone, they are not ‘negotiation’ either,? he writes. ?Instead, the government, acting through the VA, uses its power to deny manufacturers market access as a way to extort lower prices.? The VA’s single national formulary also ?reduces the range of drugs offered to enrollees,? writes D’Angelo. For example, a recent study by the Lewin Group found that of the 300 drugs most prescribed to senior citizens, ?106 (35 percent) are not included in the VA formulary, compared to ? 19 (6 percent) in the Part D plan formularies.?
Full text:

Source: Booz Allen Hamilton, 04/12/07

A new study by the management consulting firm Booz Allen Hamilton finds that physicians are not responding to the growing number of consumers seeking more information to make health care decisions, opening up the need for new trusted sources of health-care information. ?Ninety percent of consumers with greater cost responsibility would find data on expected out-of-pocket costs for a medical product or service useful, as well as quality information about a provider’s medical errors and safety rate for a specific type of treatment,? according to the study. Yet, ?just 19 percent [of physicians] currently make information on their safety or medical error rate for specific treatments available, and just 16 percent of physicians surveyed plan to do so in the next two to three years.?
Full text:


Save the date for a Health Policy Double-Header:

  • Medicare’s Fiscal Future: Getting Worse? Getting Better?
  • HHS Secretary Michael Leavitt delivers a major address describing the Administration’s policy for promoting health insurance for children and all Americans

American Enterprise Institute
Tuesday, April 24, 2007, 9:30 a.m. – 1:30 p.m.
Washington, DC

Additional details on registration to come.

Should the United States Be More Like Scandinavia?
Cato Institute Policy Forum
Monday, April 16, 2007, 12:00 p.m. (Luncheon to Follow)
Washington, DC

For additional detail and registration information, go to:

Medicaid 101: A Primer on the Health Insurance Program for Low-Income Americans
Alliance for Health Reform Briefing
Monday, April 16, 2007 12:15 p.m. – 2:00 p.m. (Lunch available at noon)
Washington, DC

For additional detail and registration information, go to:

Elements of State Health Reform: Individual Mandate and Employer Requirements
Kaiser Family Foundation Webcast
Tuesday, April 17, 2007, 2:00 p.m. ET
For additional detail and registration information, go to:

Nothing About Us Without Us: Patient/Consumer Participation in Evidence-Based Health Care
National Working Group on Evidence-Based Health Care Event
Thursday, April 19, 2007, 9:00 a.m. – 3:00 p.m.
Arlington, VA

For additional detail and registration information, go to:

Curing the Trust Crisis in Health Care
Cato Institute Policy Forum
Friday, April 20, 2007, 12:00 p.m. (Luncheon to Follow)
Washington, DC

For additional detail and registration information, go to:

A Healthier US Starts Here!
Centers for Medicare and Medicaid Services Event
Friday, April 20, 2007, 1:00 p.m.
Washington, DC

For additional detail and registration information, contact Barbara Cebuhar at 202-260-1020 or

Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about the newsletter and our organization, please visit our website at

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