Medicare and Negotitation of Lower Prices

Today's NY Times editorial on Dept. of HHS Secretary Michael Levitt stating he didn't want the power to negotiate lower drug prices got me thinking. The typical argument is that market forces should control prices and that lower prices rob the industry of funds needed to create new drugs. In my mind, these argument fails for a couple of reasons:

1. Market forces apply when the consumer can do without a given product or can obtain it or something similar at another price or from another producer. Unless I'm missing something, life itself is not something that can be obtained at a lower price or from another producer (maybe unless you're a Buddhist, with that whole reincarnation thing). So any producer who has the ability to provide a drug to someone whose alternative is pain, suffering or death, has no incentive to sell the product at a lower price. Hence, we get higher prices from the drug companies.

Sam Walton built Wal-Mart on the simply notion that "a lot of a small number is a large number." The fact Wal-Mart and Target are now offering some drugs at $4 per prescription should tell us something about negotiating power for drugs and its effects on prices. Given the opportunity to nail down a larger customer base, the economic incentives to lower prices to get to that market would outweigh any pressures to keep prices artificially high. It seems to have worked for Wal-Mart and Target and they don't appear to be manufacturing any drugs. Why not the federal government, or Arizona for that matter?

2. There are already other federal programs who get better deals on drugs than Medicare, such as the V.A. and Medicaid. How one side of the federal government can refrain from negotiating while the other side does and succeeds is an interesting notion.

3. Companies who think they can't invest in R&D deserve to fail. Other firms will jump in to take advantage of the market opportunity. University researchers will take their discoveries to firms marketing new drugs, which reminds us it's not just the drug companies wha are creating new medications. Medical research will go on no matter what the overall cost of drugs are in the United States. Besides, the U.S. isn't the only country in the world working on new drugs. The world's a big place and we're only a small part of it.

The Democrats are correct and should extend to HHS the authority to negotiate lower prices for Medicare if for any other reason than other federal programs do it and save the taxpayers likely billions of dollars. After all, who wants to save the country more money than Democrats while at the same time proving government CAN work to make things better (there's a Republican nightmare)? The voters trusted Democrats to do a better job at handling health care. Giving the HHS the authority to negotiate lower prices is a great start.

Now what can we do for Arizonans??