Published in the Star-Ledger Editorial Page
BY BOB FRANKS
Bridgewater, NJ, January 12, 2007 —Our nation’s new Congress, as part of its much-heralded “first 100 hours,” is promising to overhaul the Medicare Part D prescription benefit program. That vote could come as early as today.
New Jersey, which honors its promise to help seniors and disabled citizens afford prescription medications and hosts most of the nation’s pharmaceutical companies within its borders, will uniquely suffer among the 50 states if the promised changes are made.
Medicare Part D is the drug plan created to assist seniors and disabled individuals in purchasing medication. Part D has made discernible progress by making prescription medicine more affordable for seniors. The Medicare drug plan can now save seniors as much at 50 percent a year in out-of-pocket drug costs, saving seniors thousands of dollars each year. Recent surveys indicate that more than 80 percent of Part D enrollees approve of their plan. Try to think of another government program with an approval rate that high.
Despite Part D’s undeniable success, the new congressional leadership has promised an overhaul of this one-year-old program. Though labeled “negotiation,” that is not what this proposed overhaul is. Negotiations take place in an environment where, if one side is not being treated fairly, it can walk away and seek another customer or seller. With the federal government now providing drugs to nearly half of the consumer market, the government will not negotiate prices; it will set prices.
The problem with this proposal, as any economist could point out, is that price controls simply do not work. For validation of this premise, Congress need only look at the prescription drug plan operated by the Department of Veterans Affairs. The “price negotiation” being voted on in the House is similar to the drug policy already in place at the VA.
Through a statutory formula pegging prices, the VA’s prescription benefit plan sets prices so low that most of the latest and most effective drugs are not easily available to VA patients. The VA formulary contains only 1,400 prescription drugs compared with the 4,300 available to Part D enrollees. In fact, fewer than 20 percent of the drugs that have been approved by the Food and Drug Administration since 2000 are available to veterans who participate in the VA drug benefit.
VA enrollees are forced to first try older, less effective drugs instead of the newest and most advanced medication for their conditions. Only after this “trial and error” process and proving that the older and cheaper drugs have failed will the VA cover a newer medication.
Compare this with the situation in New Jersey. Residents have access to Medicare Part D and, for seniors with particularly low in comes, the Pharmaceutical Assistance to the Aged and Disabled program. This 30-year-old, state-operated program allows eligible seniors and disabled persons to purchase medications for only $5. Under PAAD, all prescription drugs are available. Unlike the VA’s system, there are no restrictions or waiting periods.
The program is understandably quite popular. It is also under threat from the new congressional price control proposals. When the Medicare Modernization Act was being drafted, it was determined that the Part D benefit provided would not be as generous as the benefit provided by PAAD. New Jersey made a policy decision to provide a “wrap around” benefit.
The PAAD “wrap around” provides two key benefits.
- First, beneficiaries continue to pay only a $5 co-pay per prescription and no deductible, regardless of the terms of their Part D plan.
- Second, PAAD maintains an open formulary for beneficiaries. Thus, if Part D does not cover a medication, PAAD will provide it.
Once Congress begins dictating prices, fewer drugs will likely be available, as is the case with the VA program. And if New Jersey wants to continue its 30-year history of providing seniors in PAAD with any drug their doctors prescribe, the state will end up shouldering much higher costs. With New Jersey already in the midst of a budget crunch, we all know where that will lead: to reduced benefits for those who can least afford it.
It’s also worth pondering the wider effects that price controls could have on the state’s economy. It’s no exaggeration to say that the pharmaceutical industry makes up New Jersey’s economic backbone. The pharmaceutical and medical technology industry accounted for 162,093 New Jersey jobs last year, 60,556 from direct employment and another 101,537 spinoff jobs in service and construction industries.
If the industry suffers an economic downturn — an almost certain outcome where price manipulation is involved — the effects would be widespread and immediate. Among those most affected would be a professional work force scrambling for employment. In addition, our state government would be deprived of tax income.
A plan to institute government price controls on pharmaceuticals adversely affects everyone and would seem to present a no-win solution. This is what occurs when you change the rules in the middle of the game, which is essentially what Congress is contemplating.
The Medicare drug benefit is working: More seniors are being covered, enrollment is ahead of schedule, it is less expensive than originally projected and seniors now have reliable and thorough coverage. Price controls masquerading as “price negotiation” are bad medicine, particularly in New Jersey.
Bob Franks, a former member of the U.S. House of Representatives, is president of the HealthCare Institute of New Jersey.