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Public Statements

Presecription Drugs

By:
Date:
Location: Washington, DC


PRESCRIPTION DRUGS -- (Senate - January 16, 2007)

Mr. GRASSLEY. Mr. President, I am going to proceed in morning business, but I want to welcome the new Senator from Virginia to the Senate. I look forward to serving with him. I am sorry that maybe the Senator's first time being in the chair he has to listen to my speech, but I am very glad to have the opportunity to speak to you and Members of the body and the people of the United States about a very important issue that is going to be coming before us. This is an issue that I have been speaking about for the last several days on the floor. In fact, I think 4 days last week I did. I talked about the Medicare prescription drug benefit and the so-called prohibition on Government negotiation with drugmakers for low prices. I spent time doing that because people need to understand that some proposals could have drastic consequences, not only for Medicare and the beneficiaries of Medicare but also for anyone else who buys prescription medicine.

I want to make this very clear because when you are talking about seniors and the disabled on Medicare, and on prescription drugs, you might get the impression that we make a decision here, and the only people it is going to affect are those on Medicare. But I hope I made it very clear last week, and I am going to go over this again today.

In other words, if we change Medicare in this instance dealing with the prices of prescription drugs, it will increase prices of prescription drugs for everybody. It is not going to impact just those on Medicare, the decisions we make. I have said it before, and I say it again: Having the Government negotiate drug prices for Medicare might be a good sound bite, but it is not sound policy if it is going to increase the price of prescription drugs for everybody regardless of age in the United States.

I think the House bill, which is numbered H.R. 4 and passed the House last week, very definitely falls into that category. It may be a good sound bite. It may be very politically beneficial. But a good sound bite is not good policy. It will be bad for Medicare beneficiaries and other consumers of prescription drugs.

That outcome was voiced by witnesses just last week when they appeared before the Senate Finance Committee, chaired by the Senator from Montana, Senator Baucus.

At that hearing, one of the witnesses, Dr. Fiona Scott Morton, a professor of economics at Yale University, made a key point about the size of the Medicare market and when you deal with the price that Medicare recipients pay for drugs, the fact that it has negative consequences for everybody else in America.

She pointed out that of course we all want to obtain discounts for drugs for seniors. But she said:

With close to half of all spending being generated by those seniors, whatever price they pay will tend to be the average price in the market.

Her point is, if you are half of the market, the math makes it virtually impossible for your prices to be below average. Dr. Scott Morton said that because Medicare is so large, if drugmakers had to give it the lowest price they give any customer, they would have a strong incentive to increase their prices for everybody else.

Professor Scott Morton also stated:

This approach to controlling prices harms all other consumers of pharmaceuticals in the United States and is bad policy.

I pointed out how Part D has already given seniors, on the 25 drugs most used by seniors, 35-percent lower prices than we anticipated when we wrote the bill. While it is great to be doing things for seniors, there is no free lunch. Everybody, regardless of age, will pay more for prescription drugs. Do you want that to happen? Do you want those unintended consequences to happen?

Then we had another witness at the hearing held by Senator Baucus before the Senate Finance Committee last week. It was a representative of the Government Accountability Office who talked about its Year 2000 report on this very issue, and echoed Professor Scott Morton's view. Remember, in 2000 the General Accounting Office concluded:

Mandating that federal prices for outpatient prescription drugs be extended to a large group of purchasers such as Medicare beneficiaries could lower the prices they pay, but raise prices for others.

That is from a nonpartisan Government agency working for the Congress of the United States called the Government Accountability Office.

One thing we keep hearing is that Medicare should not pay more than the Veterans' Administration pays. We had another witness, Professor Richard Frank of Harvard University, who said that if Medicare got the same prices the Veterans' Administration gets for drug prices--if that happened--it would likely raise Veterans' Administration prices for our veterans for all drugs. Do you want to hurt veterans with these unintended consequences of some of these ideas that are floating around this new Congress?

Then we had other panelists. As they listened to Dr. Frank's response, other panelists nodded in agreement. Talk about unintended consequences, do you know who else agrees with these professors who have been testifying before our committee? I point to the Military Order of the Purple Heart. In a letter to Members of Congress, the Military Order of the Purple Heart expressed its concern about the impact that extending Veterans' Administration prices to Medicare could have on veterans. In fact, they stated that several veterans organizations passed formal resolutions opposing legislation to extend the Veterans' Administration prices to Medicare because it would threaten Veterans' Administration's current discounts.

What is the end result? Higher drug prices for those who get their drugs from the Veterans' Administration.

Another key point made at last week's hearing before the Senate Finance Committee was that it is not simply about the number of people for whom you are buying drugs. In response to a question I asked Professor Scott Morton, the professor said it doesn't matter whether you negotiate on behalf of 1 million people or 43 million people--which is the number of senior citizens in this country. What matters is what leverage you have and how you use that leverage. And if you don't have a fundamental tool, and that would be the formulary, you have no leverage over drugmakers. A formulary is a list of drugs that a plan will cover.

Here is what Professor Scott Morton said would happen if someone negotiating drug prices couldn't have a formulary:

Each manufacturer would know that, fundamentally, Medicare must purchase all products. The Medicare ``negotiator' would have no bargaining leverage, and therefore, simply allowing bargaining on its own would not lead to substantially lower prices.

That is the end of the quote from Professor Scott Morton.

Then we had a Mr. Edmund Haislmaier, a fellow at the Heritage Foundation, talk about the limits of bulk purchasing power alone. In his written testimony he said:

..... volume purchasing encourages manufacturer discounting, it is not, in and of itself, sufficient to extract large discounts. Manufacturers will only offer substantial discounts if the buyer combines the ``carrot' of volume with the ``stick' of being able to substitute one supplier's goods with those of another.

In drug negotiation, that stick he is talking about--Mr. Haislmaier is talking about--is the formulary.

Here is what is wrong with the House bill that just passed. It prohibits the Secretary of Health and Human Services from using a formulary. Thus the stick that is necessary, that the Veterans' Administration uses to drive down the price of drugs, is not even in the bill that passed the House that is supposed to guarantee senior citizens lower drug prices.

For all of their talk about getting savings from Government negotiations, the House Democrats took away a key tool to get lower prices. That was a key lesson we also learned from last week's Finance Committee hearing that Senator Baucus chaired.

Here is what the Congressional Budget Office said about H.R. 4. Here I have a chart. The bottom line of it is that it would have negligible effect on Federal spending. To emphasize that, I want to read it all. For the benefit of new Members, I point out we will soon find out that when you refer to the Congressional Budget Office, it is like God on Capitol Hill. When the Congressional Budget Office says something costs something--and you might have intellectually honest, good reasons for disagreeing with it--the Congressional Budget Office is always right. If there is a point of order against it, then you get 60 votes. The 60-vote requirement around here almost makes anything or anybody or any agency a god, because it is difficult to get 60 votes. So CBO generally stands. Sometimes they are overridden but not very often. So this god of CBO:

CBO estimates that H.R. 4--

I want to emphasize, that is the bill that just passed the House last week, a Democratic bill-- would have negligible effect on Federal spending because we anticipate that the Secretary-- meaning the Secretary of HHS--would be unable to negotiate prices across a broad range of covered Part D drugs that are more effective than those obtained by PDPs under current law.

You heard it during the campaign. You heard it a long time before the campaign. If we do away with this noninterference clause, we are going to get drugs cheaper for the citizens. This is supposedly on top of the 35 percent of the average reduction in the price of the 25 drugs most often used by senior citizens, and the god of Capitol Hill says there is not going to be the savings. That is not only for the people who pay out of their pockets some portion for drugs, but also saving the taxpayers money.

I am going to quote another thing from the Congressional Budget Office that gets back to this carrot and stick, the stick being the formulary that is used by the Veterans' Administration to get the low prices they get--the same pattern that proponents of doing away with the noninterference clause want to follow, to get lower prices for senior citizens, and that is the formulary. The Veterans' Administration has a formulary, but the House bill passed last week does not have a national formulary, so you do not have a stick to accomplish the goals.

Without the authority to establish a formulary, we believe the Secretary would not be able to encourage the use of particular drugs by Part D beneficiaries, and as a result would lack the leverage to obtain significant discounts in his negotiations with drug manufacturers.

It is pretty clear that what we are being told you are going to get as a result of the House-passed bill is not happening. So I would quote another independent actuary--maybe not quite the god that CBO is, but the actuaries at the Center for Medicare Services, the agency that oversees the Medicare drug benefit. They said about the same thing about H.R. 4 not having a formulary.

Although the bill would require the Secretary to negotiate with drug manufacturers regarding drug prices, the inability to drive market share via the establishment of a formulary or development of a preferred tier significantly undermines the effectiveness of negotiations.

Whether you are CBO, responsible to the Congress of the United States, working for the Congress of the United States, or whether you are the actuaries downtown at the Center for Medicare Services working for the President of the United States--and maybe actuaries are fairly independent--but the point being they came to the same conclusion, that the tool that is necessary to accomplish what Democrats say they want to accomplish by doing away with the noninterference clause to negotiate prices with drug companies isn't going to be effective because the tool to be effective is not in their legislation.

Let me point out the key downside of having the Secretary establish a national formulary in my next chart. Fewer drugs would be covered. I have made a point about keeping the Government bureaucrat out of the medicine cabinet, not to be the person between the doctor and the patient. We set up, as a principle in the Medicare bill, to do it differently than the Veterans' Administration because the Veterans' Administration did not allow every therapy to be available to a veteran. A bureaucrat makes a decision that a veteran can have this, but a veteran cannot have that, the Government will not buy this. We did not want the senior citizens to be treated that way, so every therapy has to be available.

This chart shows only 30 percent of the drugs covered by Medicare will be available to seniors if done the way the Veterans' Administration does it. Do you want to get the complaints from the seniors of America, as I sometimes get from veterans? They come to my town meetings saying: My doctor says I should not take this pill because there are side effects, I should take this one. Why won't the Veterans' Administration let me buy this pill? The doctor said I ought to have it.

I can go to the Veterans' Administration and advocate for this veteran, but it is not a sure thing. We do not have to worry about that with seniors.

Let me sum up two important points from the Senate Committee on Finance hearing we had last week and from the experts from the Congressional Budget Office and the chief actuary of Medicare.

First, giving Medicare the lowest price a drugmaker gives any purchaser, whether that is a private plan or the Veterans' Administration, will increase prices of prescription drugs for everyone else in America. That means higher prices for working Americans and for small businesses. Second, in summary, the ability to use a formulary to negotiate means you have to be able to tell a drugmaker: If you do not give me a good price, I will pick another drug to put in my formulary. If you do not believe all the experts, if you do not believe all of the people that have studied this over a long period of time, whom are you going to believe?

I remind everyone from where the prohibition on negotiations came. We have 10 new Members of the Senate, and a lot of them will not be familiar with the genesis of the noninterference clause. The opponents of the drug benefits seem to conveniently forget their own bills had the same language and that they supported a benefit run by private plans. My next chart demonstrates this better.

The prohibition of Government negotiation--what is referred to as a noninterference clause--first appeared in Democratic bills; in total, seven bills introduced and supported by 34 Senate Democrats and more than 100 House Democrats had the prohibition in these legislation. On top of that, many of the Members who are now twisting that language cosponsored that very legislation.

I will not emphasize every Democratic Congressman or Senator who introduced these seven bills, but I will emphasize President Clinton, in 1999, when he proposed from the White House a plan for prescription drugs for seniors. The plan proposed by President Clinton took the same approach. President Clinton said so many good things that I didn't have to think up new things, just repeat what President Clinton said about saving money and the ability of plans to negotiate and save money, and to make sure there was a wide range of drugs available for our seniors.

We have a good basis for including in our bipartisan bill that passed in 2003 things that Democrats had in their bills before we passed our bill. I don't see any of them embarrassed about that fact even while they go on talking about how bad the provision is now that it's in a bipartisan bill. Plans are negotiating for seniors, and those negotiations are reducing the cost of the 25 most often used drugs by seniors on an average of 35 percent. President Clinton said so many good things that I don't have to say them. I wish Members would read some of the things President Clinton said about this.

Continuing to summarize, the Secretary does not need the authority to negotiate and a national formulary is a bad idea. Competition among these plans that seniors are now joining--91 percent of the seniors have prescription drug coverage; the Medicare prescription drug benefit is a voluntary program; they do not have to get in it if they don't want to--had led to lower drug prices for beneficiaries and, more importantly, lower costs for taxpayers and the States. This is saving taxpayers $189 billion. I will cover that in a minute.

Premiums are lower than they were estimated to be. I talked of lower drug prices, but now I am talking about the premiums to join the plans. Before 2006, the Medicare chief actuary estimated the average monthly premium would be $37. In fact, we struggled to make sure, when we wrote the Medicare bill, that the premium would be between $35 and $40 a month because we felt above that there would be resistance to joining, and we would not have 91 percent of the people in. We planned on $35 to $40. The chief actuary said $37. But because of competition, it ended up being only $23 in 2006. In the year 2007, premiums are going to average $22. Competition is working.

The net cost to the Federal Government is also lower than expected. This is that $189 billion. Last week, the official Medicare actuary announced the net 10-year cost has dropped by $189 over the original budget window used when the Medicare Modernization Act was enacted. That is a 30-percent drop in the actual costs compared to what was projected. Competition is working.

I ask any Member how often a Federal program comes in under cost. We always speak of overruns. Every Federal program is costing more than we anticipate when we pass it. Overruns do not seem to be the sin they ought to be. We have a program $189 billion under what we thought it would cost, so we have an underrun. We never hear of that. We could not get the lower prices and lower costs unless the prescription drug plans are, in fact, what we anticipate they would be--strong negotiators with the drugmakers. Competition is working.

I know the opponents of the drug benefit will likely keep up their attacks on the program. They have pandered through the last election and they have to deliver. What are they delivering? They are delivering a pig in a poke. They may be delivering something very negative for the seniors of America. I have been working hard this week to give people important facts that have been left out of the debate on negotiation of drug prices.

The plain and simple fact is that competition among the plans is working. The Medicare plans are delivering the benefits to Medicare beneficiaries. These private sector plans have the experience in negotiating better drug prices. As I pointed out last week, for 50 years, Federal employees, under the Federal Employee Health Benefit Program, have been doing it this way. It has successfully worked. That is why we adopted it for seniors.

These Medicare negotiators have proven their ability to get lower drug prices. The Medicare plans are negotiating with drug companies using drug formularies within the rules set by law. These plans have to be approved by the Centers for Medicare & Medicaid Services. Medicare beneficiaries have access to the drugs they need and 70 percent of the drugs that are out there under the Medicare prescription drug benefit are not offered by the Veterans' Administration to veterans.

I have an example from the ALS Association, better known as the association dealing with Lou Gehrig's disease. Here is what they said about repealing the noninterference clause in a January 4 letter to Members of Congress:

The elimination of the noninterference provision will have particularly cruel consequences for people with ALS. It means that even if a new drug is developed to treat ALS, many patients likely will not have access to it. That's because price controls can limit access to the latest technologies.

The letter continues to say that individuals with ALS:

..... will either be forced to forego treatment, or only have access to less effective treatment options--ones that may add a few months to their lives but not ones that will add years to their lives.

Just for the record, drugs to treat ALS are covered under the Medicare drug benefit right now.

I end with a statement I have so often used in the last week: If it ain't broke, don't fix it.

I ask unanimous consent to have these letters printed in the RECORD.

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http://thomas.loc.gov

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