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New means to rein in Medicare

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Congress is moving to let the government use its mass purchasing power to buy drugs for Medicare recipients and negotiate for lower prices. But a better way to reduce costs in this expensive healthcare plan would be a "means test" for users.

Newly empowered Democrats, eager to make a good first impression, say the previous Republican Congress erred in banning the government from seeking price concessions from drugmakers. They cite a study showing that the Department of Veterans Affairs, which can negotiate for its drug prices, pays an average of 58 percent less than Medicare for identical drugs. Medicare Part D, which began last year, leaves that bargaining role to the private insurers that administer the plan.

But the Congressional Budget Office has said that taking over negotiations is unlikely to save Medicare much money. The proposed change contains no provision for establishing a formulary (a list of approved drugs), meaning that Medicare negotiators would be deprived of a key negotiating ploy – the ability to remove a drug from its approved list if the price were too high. And others point out that the VA simply buys fewer types of drugs if drugmakers' prices are too high. The VA's plan has other differences that make a comparison unfair.

Given that Democrats also would like to close, or at least shrink, the "doughnut hole" in Medicare drug coverage – expenses between $2,250 and $3,600 per beneficiary that aren't covered for most participants – savings from any negotiating power easily could be eaten up trying to fill that gap.

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