One of the dumbest “cost control” schemes advocated by progressive health care wonks is the notion that Medicare can use its clout to negotiate prices directly with pharmaceutical companies. In this context, “negotiate” means “dictate,” and our warrior President has predictably adopted this idiotic idea:

We will cut spending on prescription drugs by using Medicare’s purchasing power to drive greater efficiency and speed generic brands of medicine onto the market.

The model always put forward by the advocates of this approach is the VA. Here’s how the ever-clueless Maggie Mahar puts it:

According to a new analysis by Austin Frakt titled “Should Medicare Adopt the Veterans Health Administration Formulary?? … the federal government would stand to save $14 billion each year if it followed the VA’s lead.

The problem, of course, is that pesky market. Pharmaceutical  companies, like any other entity run by sane people, will stop selling goods and services if forced to do so at a loss. Sally Pipes (ht Paul Hsieh) points out, in Forbes, what has happened in the real world:

The VA pays about 40% less for prescription drugs than Medicare Part D … But the VA has only been able to deliver those savings by covering fewer drugs.

In fact, the study quoted by Mahar provides the following information:

Health care economist Austin Frakt … found that the average Medicare Part D plan covered 85 percent of the nation’s 200 most popular prescription drugs — while the VA formulary covered just 59% of those drugs.

Using the federal government to bully drug companies into selling at below-market prices is just another version of government-imposed price controls. Price controls don’t reduce costs, they only reduce the amount of goods and services available to the public.

In the case of drugs, such reductions will also limit your life expectancy. Is that what you voted for in 2008?

Comments 2

  1. Marc Brown wrote:

    This post is nonsense. It’s easy to check that the VA in fact covers more than Medicare part D.

    Posted 05 May 2011 at 10:46 am
  2. Diogenes wrote:

    It’s easy to check that the VA in fact covers more than Medicare part D.

    You may want to take that up with Mr. Frakt, the economist quoted by Mahar. He says, “VA’s national formulary covers 59% of the top 200 drugs while Medicare PDPs cover between 68% and 93% of those drugs, averaging about 85% covered.”


    Posted 05 May 2011 at 1:07 pm

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