Bush’s Drug Plan Wasteful, Inefficient

Bill Scher

A report released today concludes: “Allowing Medicare to negotiate for lower drug prices would bring around $30 billion in savings that can help American seniors and taxpayers.”

That finding was in a new report released today by Roger Hickey and Jeff Cruz of Institute for America’s Future, in cooperation with economist Dean Baker, entitled, ”The Waste and Inefficiency of the Bush Prescription Drug Plan.” This is critical information as the Senate considers scrapping the current ban on negotiation, which already cleared the House. (See this Common Sense post on the “army” of drug company lobbyists mobilized to kill the bill.)

The Executive Summary of the report is below. Click here for the full report.

Legislation that would allow Medicare to use its bulk purchasing power to negotiate for lower prescription drug prices could save American taxpayers and seniors more than $30 billion annually. About $10 billion of these savings would accrue to American seniors in the form of cheaper prices. This is very significant, as the whole purpose of Part D was to help American seniors access vital prescription drugs. The median per capita income for American retirees is only $14,664 yet seniors require the most prescription drugs of any group of Americans. People 75 years of age and older take an average of 7.9 drugs per person per day.

The U.S. government could save roughly $20 billion a year by having Medicare negotiate for the same prices the Veteran’s Administration already gets. Under pay-go budget rules, this represents an important source of savings that could be used to fund other programs. In fact, the potential savings from just two drugs alone (Lipitor and Zucor) could entirely fund the shortfalls faced by states’ SCHIP programs (State Children’s Health Insurance Program) and ensure that more American children have adequate health coverage.

Legislation to allow negotiation overwhelmingly passed the House in January and will soon be debated in the Senate. Groups like the AARP, Families USA, the Alliance for Retired Americans, the National Committee to Preserve Social Security and Medicare, US Action and Campaign for America’s Future have mobilized to help pass this legislation. However, the pharmaceutical industry – with its annual lobbying budget of over $100 million – is also mobilizing to protect its excess profits by opposing any changes to Part D.

In addition to the tremendous savings offered by allowing Medicare to negotiate for lower prices, there is also an opportunity to save more than $5 billion a year in administrative costs by allowing seniors to get their benefits directly from Medicare. Both of these ideas are very popular with the American people, being favored by 85% and 76% of American adults, respectively. If both enacted, this could save American seniors and taxpayers more than $35 billion dollars annually.

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