[Congressional Record (Bound Edition), Volume 153 (2007), Part 1]
[Senate]
[Pages 388-390]
[From the U.S. Government Publishing Office, www.gpo.gov]




                   MEDICARE PRESCRIPTION DRUG BENEFIT

  Mr. GRASSLEY. Madam President, it is a very important issue that is 
going to be coming before the Senate very shortly, and it deals with 
the Medicare prescription drug benefit and whether the Government ought 
to negotiate prices as opposed to what is in the Medicare Part D bill. 
I wish to speak on that subject because this issue is very important to 
the seniors of America. It is important for the public and for Medicare 
beneficiaries to fully understand these proposed changes. It is equally 
important we explore in depth the effects these changes are going to 
have on this program and particularly the negative impact on the senior 
citizens of our country. So I am going to spend some time this week 
dealing with this issue.
  First, everyone should recognize that political opponents of the drug 
benefit have, in every way, done everything they can to tear apart and 
denigrate this new benefit that the vast majority of seniors find to 
their liking, based upon a lot of different polls that have been taken 
over the last 7 or 8 months. In fact, the opponents of this legislation 
have done this ever since the ink was barely dry on the bill we called 
the Medicare Modernization Act of 2003.
  First they said that no plan would offer--meaning no benefit plan; 
the people, the administrators of the program--that none of these plans 
would offer the new drug benefit in the first place, that eventually 
the Government was going to end up doing it. Of course, we know that is 
not the fact. The plan is up and running, and the plans are offering so 
many.
  Then, after it was up and running, these opponents of the legislation 
said, well, there were too many plans. They said it was too confusing, 
seniors would not be able to choose a plan. But 91 percent of seniors 
are covered by some plan that has prescription drugs in it, and surveys 
show overwhelming satisfaction by seniors with their plans.
  Opponents suggested plans could change their prices and the drugs 
they cover at the drop of a hat without even almost any notice. This 
did not turn out to be the case. The opponents tainted beneficiaries' 
views of the benefits before it even got off the ground. You wondered 
whether the millions of people who signed up would ever sign up, 
hearing so much negative stuff about it. But they did sign up.
  And, as we have heard from the opponents over and over again, one of 
the biggest criticisms about the drug benefit is that the Government 
does not negotiate with drugmakers for lower prices. So they have gone 
to great lengths to make it sound as if nobody is negotiating with the 
drug companies. It is, of course, correct that the Secretary of Health 
and Human Services does not do negotiation with drug companies. But it 
is absolutely not true there are not negotiations going on with drug 
companies. People who say that are completely nonsensical in their 
understanding of the legislation or maybe they have some ulterior 
motive of wanting to continue to degrade and denigrate a piece of 
legislation that seniors have accepted.
  The idea behind the drug benefit is that multiple drug plans would 
compete with each other to get the lowest prices from manufacturers, to 
be the best negotiator, and to offer beneficiaries the best possible 
drug plan.
  The pattern for this was the 40-year-old Federal Employees Health 
Benefit Plan that has worked so well for Federal employees. We 
patterned this program, Part D, after that: plans negotiating for 
Federal employees, getting a good price; plans that have membership of 
senior citizens negotiating with drug companies to get the best 
possible price for senior citizens who are in a particular plan.
  But the opponents of this legislation do not like plans negotiating. 
They think the Government directly can do a better job of negotiating 
because they have a belief about Government always doing good, 
Government always doing the best. Their faith is in big Government 
because they lack faith in the American people. They find it very hard 
to believe anybody other than the Government could do a better job of 
negotiating.
  Last week on the Senate floor, the senior Senator from Illinois said 
the law ``took competition out of the program so that [the drug 
companies] could charge what they want.'' Well, it did not take 
competition out of the program. Competition is what this program is all 
about.
  In fact, the competition is working. Plans have no restrictions on 
the tools they can use to negotiate with drug companies. And, remember, 
these plans must be approved by the Secretary of Health and Human 
Services. Not every Tom, Dick, and Harry can go out and offer a plan 
and hoodwink seniors. There is control over these plans. But once the 
plan is approved, there are no restrictions on the tools they can use 
to negotiate. And, of course, this is very important because one thing 
we had learned is that Government is not actually a very good entity at 
figuring out what it should pay for drugs.
  I have a chart in the Chamber with a quote from the Washington Post. 
They recognized this fact, that the Government cannot do a very good 
job of negotiating, where they said: ``Governments are notoriously bad 
at setting prices. . . .'' And then, as a matter of emphasis, it said: 
``and the U.S. government is notoriously bad at setting prices in the 
medical realm.'' I will add to that: especially when it comes to 
medicine policy.
  Now, we knew this because of the Government's experience for paying 
for drugs under another Medicare program, not Part D as in ``Donald,'' 
but Part B as in ``Bob,'' the one that pays for doctors. Those drugs 
are given during a physician's office visit, and they could be drugs 
such as oral cancer drugs.
  Medicare payments for these drugs were based on what is called the 
average wholesale price. ``AWP'' is the moniker that is used for that. 
AWP is a little bit like the sticker price of a car. The sticker price 
on a car is not what you pay for the car. And the average wholesale 
price, AWP, is not what you pay for drugs. The joke was that AWP 
actually stood for ``Ain't What's Paid.''
  Over the past decade, reports issued by the Office of the Inspector 
General, the Department of Justice, and the Government Accountability 
Office found that by relying on AWP, Medicare was vastly overpaying for 
these drugs.
  So the Federal Government sets the price, and we end up wasting a lot 
of taxpayer money under Part B with the few drugs that Medicare was 
paying for before we passed Part D.
  Recommendations were made to change payments so that they reflected 
actual market cost. The Clinton administration tried to make some of 
these changes, but after push-back from providers, it backed off. 
Congress took another run at this issue in 2003 in the Medicare 
Modernization Act, and we were successful. Congress reformed how 
Medicare pays for these drugs under Part B as opposed to the drug 
program Part D. Medicare now based its payments for many of these drugs 
on what it ought to, a market-based price. This change is already 
saving taxpayers and beneficiaries, but it took years to get fixed. All 
that time Medicare and taxpayers paid too much for

[[Page 389]]

these drugs. Billions and billions of dollars were wasted.
  I compliment President Clinton for trying to do something about it, 
but he couldn't get it done. Congress had to act. But when we had all 
of this track record, as we were writing the prescription drug bill, I, 
for one, didn't want to repeat that experience under the Medicare drug 
benefit. We also knew that Medicare overpays for a lot of other 
services and equipment. The bookshelves are full of other reports from 
the Government Accountability Office, from the Inspector General, from 
the Medicare Payment Advisory Commission, from the Congressional Budget 
Office, and others, about how Medicare is paying too much in too many 
areas where the Government pays for health care through Medicare.
  For example, Medicare overpaid for durable medical equipment for 
years until the Republican-led Congress made changes in 2005 in what we 
called the Deficit Reduction Act. In fact, just 12 months ago, now, 
that was a big issue before the Congress.
  Each year, the Office of Inspector General issues its Red Book which 
presents cost-saving recommendations. The books are usually 50 or more 
pages long, and the recommendations span all aspects of Medicare--
hospitals, physicians, home health, the Medicare Part D plans, among 
others. And this is more evidence on many areas where Medicare doesn't 
get the best deal, where the Government doesn't get the best deal. So 
Government doesn't always know best. In fact, the situation is so bad 
that several years ago, Congress created what is called the Medicare 
Payment Advisory Commission, also known as MedPAC, to provide advice to 
us in Congress and to the Center for Medicare Services on what we ought 
to pay for services. And every year Congress hears recommendations from 
MedPAC addressing Medicare overpayments; yes, trying to do something 
about wasting the taxpayers' money, paying more than we should for 
health care for our senior citizens.
  But even though we have MedPAC, experts studying this, coming out 
with recommendations, it takes Congress or the Secretary of Health and 
Human Services far too many years to make the changes to save the 
taxpayers money--more evidence that Government doesn't always know best 
when it sets prices.
  In making recommendations, MedPAC looks at profit margins as an 
example. One type of provider had been found to have a margin of 16 
percent off of Medicare payments. Congress has been able to act on many 
MedPAC recommendations, but it is not easy. There is always some 
special interest out there fighting saving the taxpayers money. As 
chairman of the Finance Committee, I received letters from Members 
saying, ``Please don't cut benefits for this provider group or that 
provider group.'' So as the Clinton administration found, letters like 
that, where they come to Congress or to the administration, can make it 
difficult in very short order to solve a lot of these overpayment 
problems, despite compelling evidence of overpayment, despite the high 
profit margins, despite the fact that the proposed change could save 
the taxpayers billions of dollars.
  The architects of the drug benefit--and I am one of them--were 
concerned that this same kind of dynamic would happen again. So 3 years 
ago, when we wrote the bill, we tried to deal with that problem. 
Political pressures on the Medicare drug benefit would tie the hands of 
the Secretary of Health and Human Services. If that happened, the 
program would be unmanageable, and the costs would skyrocket, just as 
they have in many of these other instances where the Government is 
setting the price. So, instead, Congress put competing private plans in 
charge of negotiating; again, following on the pattern of 40 years of 
the Federal Employees Health Benefits Program. So under the Part D 
Medicare prescription drug program, these health plans and their 
pharmacy benefit managers, because they have years of experience in 
this arena--it is what they do--they negotiate, and Health and Human 
Services has had very little experience and a very dismal track record 
in doing it.
  These plans and managers have powerful bargaining clout in the 
market. They manage the drug coverage for tens of millions of people. 
There are plans that cover upwards of 50 million people--75 million in 
one case--far more than the 41 million Medicare beneficiaries. So, 
clearly, Medicare beneficiaries account for a large number of all 
prescriptions filled each year. Some might argue that 41 million 
beneficiaries have more clout than 75 million nonbeneficiaries. But 
numbers alone do not necessarily translate into lower cost. It is what 
is done to leverage those numbers that leads to lower costs.
  That leverage comes from the plan being able to say to a drug company 
something like: I can get a better deal on a different drug that has 
the same clinical effect made by manufacturer Y. So thank you for your 
offer, but I am leaving the table.
  Some plans get a better deal on drug A and put it on their formulary. 
Some plans get a better deal on drug B. But many experts agree, and 
experience suggests, that it would be difficult for Medicare itself to 
walk away from the table; in other words, the Government people doing 
the negotiating. There would be enormous pressure to cover everything 
and, if it did, the negotiating power lies then with the manufacturers 
and not with Medicare.
  In fact, in a November 2 Wall Street Journal editorial, Dr. Allen 
Enthoven, an economist at Stanford University, wrote:

       When the government negotiates its hands are tied because 
     there are few drugs it can exclude without facing political 
     backlash from doctors and the Medicare population, a very 
     influential group of voters.

  Yesterday's New York Times quoted Dr. Alan Garber, the director of 
the Center for Health Policy at Stanford University, on the same 
subject. Dr. Garber said:

       To obtain drugs at low prices, a purchaser must be able to 
     say no to covering a particular drug.

  He went on to say:

       [I]f you cannot walk away from a deal, there's no way you 
     can be sure of obtaining [the lowest possible] price.

  Dr. Garber's point is exactly on point. The Medicare drug benefit 
recognizes that the Government would be a weaker negotiator. So as we 
set it up, it relies upon private sector plans to do the negotiating, 
as has been done for 40 years under the Federal Employees Health 
Benefits Program. We believed then that the private sector could be a 
tough negotiator, and we had a way to make competition work.
  When Congress finished work on the new drug benefit in 2003, we knew 
it was an experiment. Nothing like this had been tried on this scale. 
Here is what we learned: Private competition works. It has been very 
successful in keeping costs down. These plans that negotiate their bids 
have come in lower than we even expected. This year they were down 10 
percent from last year's bids. How many commodities do you see in 
America where you are going to find something 10 percent less this year 
than last year?
  It happens that premiums are lower for people joining these plans; 
the premiums that they pay are lower than they were estimated to be. 
Before 2006, Medicare's chief actuary estimated that the average 
monthly premium would be $37 a month. But because of competition, it 
was actually $23 in 2006. That is 38 percent lower than expected. And 
because of the strong competition between plans, the average premium 
for beneficiaries is expected to be about $22. That is $1 cheaper this 
year than in 2006. The net cost to the Federal Government is also lower 
than expected. Just today the official Medicare actuaries are 
announcing that the net 10-year cost of Part D has dropped by $189 
billion over the original budget window used when the Medicare 
Modernization Act was enacted in 2003. That is, in fact, a 30-percent 
drop in actual cost compared to what was projected when the bill was 
being written.
  Cost overruns is the name of the game with most people doing business 
with the Federal Government. In this particular case, this is an 
exception to cost overruns. This is where things are coming in $189 
billion less than bureaucrats projected they would cost when

[[Page 390]]

the bill was written. Of course, States are involved in this as well 
because they had a lot of senior citizens on what we call Medicaid for 
low-income people. States are saving money in lower contributions. 
These are referred to as clawback payments. So State payments are now 
projected to be $37 billion less over a 10-year period, and that is 27 
percent lower than what we thought they would be when the legislation 
was written.
  Just in the year 2006, the 50 States saved $700 million. The plans 
are negotiating lower prices for drugs. Let's take the top 25 drugs 
used by seniors. Using them, the Medicare prescription drug plans have 
been able to negotiate prices that are, on average, 35 percent lower 
than the average cash price at the retail pharmacies. That is 35 
percent lower. Some examples: Lipitor is 15 percent lower; Anetol, 63 
percent lower; Norvas, 28 percent lower; Fosamax, 30 percent lower.
  When the drug benefit was signed into law, we believed it would work. 
We believed it would hold down costs. That is certainly happening 
today, now going into the second year of experience with this 
legislation. At the time it was signed into law, we also said that if 
it did not work, if the negotiating model we wrote into the legislation 
did not hold costs down, then Congress would need to reexamine the 
whole setup. That makes sense. But if costs grew too fast, then the 
whole idea, obviously, would have to be revisited. Maybe we would have 
to restrict access to drugs. Maybe we would have to rely more on mail-
order pharmacies, instead of liberal access to local retail pharmacies. 
Maybe more drastic cost-cutting measures would be needed. We thought of 
all those things as we were writing this legislation.
  But as it turns out now, 3 years later, since the President signed 
the bill, that is not the case. Everyone has heard the old saying, ``If 
it ain't broke, don't fix it.'' That certainly applies here, and the 
evidence shows it. I would be the first one to say the Medicare drug 
benefit is not perfect. There are improvements that can be made. The 
Senate version of the drug bill had some important features that I hope 
we can revisit at some point. Congress should look at ways to make it 
easier for low-income beneficiaries to get the additional assistance 
they need by eliminating the low-income subsidy asset tax. We need to 
look at payments to pharmacies and make some reforms in that area. We 
need to look at ways to simplify the enrollment process. And there are 
other areas, too, where we can make improvements.
  But to emphasize one area that is working very well, it is the 
negotiating power of the Medicare drug plans. They have shown their 
ability to hold down costs, so it is working. The pleas from the drug 
plans' opponents to put the Government--because they believe in big 
Government--in charge of negotiating are, quite frankly, about 
politics, not policy. These voices want to score political points with 
the drug benefit. It saddens me that we are going to start off this 
year with a new Democratic-controlled Congress playing politics with 
Medicare and raising issues that could harm our senior citizens as 
opposed to benefiting them.
  But that is what this issue is all about; it is about politics. It is 
not about saving money because this program, through negotiations by 
the drug plans, is already saving money. It is surely not about 
improving the program. In fact, the Congressional Budget Office looked 
at the proposals made last year to have the Secretary negotiating drug 
prices, and they concluded they would not achieve any savings. So 
around here the Congressional Budget Office is like God. If they say 
something costs something and you don't have an offset for it, they are 
so much of a god around here, if you try to get it done, you have to 
have 60 votes to get it done. Now we have the Congressional Budget 
Office saying there are no savings, because the Government negotiates 
instead of having the plans negotiate. During the debate on the Deficit 
Reduction Act of 2005, Senators Snowe, Wyden, McCain, and Stabenow 
offered an amendment to give the Secretary authority to negotiate with 
drug companies.
  Here is what CBO said about that amendment: It would produce zero 
savings. So what is this amendment all about? If you are going to save 
senior citizens some money by having Government negotiate instead of 
the plans, you should not get a big zero out of the CBO.
  I want to have a second chart observed by my colleagues. This is a 
person a lot of people 3 years ago were expressing was competent when 
he was judging that this bill would cost more than the CBO said it 
would cost, and that somehow the administration was playing games with 
these figures. All these figures ended up being too high because they 
are $189 billion lower than they were saying they were going to be. 
There are no cost overruns in this program as in every other program. I 
am going to refer to the chief actuary for Medicare who examined these 
proposals we are talking about and having the Government negotiate. He 
came up with the same conclusion: Direct price negotiations by the 
Health and Human Services Secretary would be unlikely to achieve 
prescription drug discounts of greater magnitude than those negotiated 
by the Medicare prescription drug plans responding to competitive 
forces.
  Competition in the marketplace is what getting the consumer the best 
buy for the money is all about. Every day consumers benefit from 
competition. We wrote competition into this program 3 years ago, and 
that competition is working for the seniors. Now we have people who 
want to come out here and screw it all up for the senior citizens of 
America.
  I hope we can put politics aside here and focus on some of the real 
improvements we could be making in the drug benefit program that I 
pointed out today that need to be made, and not deal with things that 
are working. ``If it ain't broke, don't fix it.''
  Madam President, since no other Members are here, I suggest the 
absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. DURBIN. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________