2 changes to cut Federal health care expenditures

If we’re serious about cutting Federal health care expenditures over the long term, here are two changes that will do just that.

1. Requiring HHS to negotiate with pharma for Part D drug costs would reduce annual expenditures by over $20 billion.

As I’ve noted repeatedly(but unfortunately few in the mass media have), Part D’s perhaps the biggest deficit problem we have – the ultimate unfunded liability is now over $20 trillion. Of course, we could solve the majority of our budget problems by just canceling Part D, but neither the Democrats nor the Republicans ) will do that.

So, as long as we’re stuck with the damn thing, we ought to make it as inexpensive as possible. The best way to do that is to use the buying power of Part D to negotiate with manufacturers to get the best possible price for drugs that you – the taxpayer – are paying for. Believe it or not, the original Part D legislation expressly forbids negotiation with manufacturers for pricing.

In a 2006 House analysis, a report “showed that under the new Medicare plan, prices for 10 commonly prescribed drugs were 80% higher than those negotiated by the Veterans Department [emphasis added], 60% above that paid by Canadian consumers and still 3% higher than volume pharmacies such as Costco and Drugstore.com.”

Another study indicated “An annual savings of over $20 billion could be realized if FSS [Federal Supply Schedule] prices could be achieved by the federal government for the majority of drugs used by seniors in 2003-2004…”

Are there problems with this? Absolutely. Reducing prices may impact R&D expenditures and will affect pharma margins – effects that must be balanced against the nation’s long-term financial viability.

2. Stop paying for medical ‘bridges to nowhere’; Require HHS to base reimbursement for devices and therapies on efficacy and effectiveness.

As noted in a recent piece in Health Affairs, “with only very rare exceptions, Medicare does not use comparative effectiveness information to set payment rates. Instead, it links reimbursement in one way or another to the underlying cost of providing services.” CMS is prohibited from considering benefit to the patient when developing reimbursement formulae and levels.

About a third of US health care dollars are spent on treatments that are likely not effective. One has only to look at the history of MRIs, carotid endarterectomy, and angioplasty to identify billions of dollars that have been wasted on treatments that did not help, and may well have harmed, thousands of patients. These treatments, devices, and providers make money for their purveyors and manufacturers, dollars that they are loathe to give up.

It is amazing that we pillory the Feds when they spend taxpayer dollars on services or items that (some opine) don’t work at all or don’t work as they are supposed to, yet prohibit CMS from doing precisely that.

Cutting costs while improving outcomes is absolutely possible. Whether it is politically feasible is another question entirely.

Joseph Paduda is the principal of Health Strategy Associates, and blogs at Managed Care Matters.

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