American Elephants


The Trump Administration is Reforming Medicare with Competition and Common Sense. by The Elephant's Child

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President Trump has approved a new medicare rule to reduce prescription drug prices through competition. U.S. Health and Human Services Secretary Alex Azar explained to reporters on Saturday. Few people know that America leads the world in encouraging doctors and patients to use low-cost, high-value generic drugs. More than four-fifths of all prescriptions in the U.S. are for unbranded, off-patent generic drugs that cost less than a typical bottle of mineral water. A tremendous help for people with ordinary medical issues like high blood pressure, early-stage diabetes, and high cholesterol.

The cost problem is the high cost of branded, on-patent prescription drugs. Pharmaceutical companies take advantage of their market power to charge unreasonably high prices unrelated to the true clinical and economic value of the underlying medicine. The way Medicare — with four different insurance programs with different premiums and copays—covers different kinds of prescription drugs. Medicare Part A covers hospital stays, including the drugs administered there. Medicare Part B, covers drugs administers in doctors” offices such as intravenous infusion. Medicare C, “Medicare Advantage”, is a new, popular, privately-administered Medicare program that covers the same services and Parts A and B. The Bush administration created a 4th Medicare program to cover retail prescription drugs from your pharmacy.

Part D has done a great job of helping competition among private insurers and drug companies to bring lower prices, and the program has come in way under budget. A novelty in U.S. history. However Medicare’s design puts a ceiling on competition because it prevents competition among retail drugs and those administered in doctors offices and hospitals.

A number of expensive drugs for rheumatoid arthritis are administered in doctors offices under Medicare Part B. Doctors get a 6% commission on the average selling price of prescription drugs they administer in their offices, which means a big incentive for doctors to steer patients to these drugs. A new generation of treatments for rheumatoid arthritis are oral drugs financed through Medicare Part D. Because the different Medicare programs operate separately, seniors don’t get the benefit from competition between the new oral drugs and the older drugs covered by Part B.

The new rule allows Medicare Advantage plans to use “step therapy” under which seniors might start with an oral drug paid for by Part D, if it’s of equal clinical value but lower cost, and then step to a more expensive injectable drug if the first medicine fails to work. Insurers would be required to return at least half of the savings to seniors, possibly in the form of those Visa gift cards often sold in grocery stores and pharmacies.

This gives Medicare Advantage plans the tools to get a better deal for patients. Competition works. This is free market capitalism at its best.

There are two short books that I recommend highly, by Philip K. Howard: The Death of Common Sense and The Lost Art of Drawing the Line. He explains how government rule books (law) dictate results that never make sense. Government, with the best of intentions, hands out new legal rights that screw up something else. Intending to be fair, in the name of individual rights, Americans end up losing much of their freedom. Brilliant books that help in understanding why free market capitalism brings prosperity that simply eludes the control freaks of the world.




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