Chuck Grassley

United States Senator from Iowa





Sen. Grassley's Opening Statement for Committee on Finance Mark-Up of S.3, the Medicare Prescription Drug Price Negotiation Act of 2007

Apr 13, 2007

Sen. Grassley's Opening Statement for Committee on Finance Mark-Up of S.3, the Medicare Prescription Drug Price Negotiation Act of 2007

            Mr. Chairman, a lot of political hay has been made about the so-called prohibition on Medicare negotiating with drug makers for lower prices under the Medicare drug benefit.


            First, everyone should recognize that opponents of the drug benefit have tried to tear this benefit apart since day one.  The naysayers wanted a government run benefit with the federal government dictating drug prices.  The naysayers said there’d be no prescription drug plans.  Then when that didn’t happen, they said there were too many plans.  The naysayers said that it was too confusing-that seniors would not be able to choose a plan.  But seniors have enrolled and surveys show that they’re satisfied with their plans. 


            But the naysayers’ biggest criticism of the drug benefit is that, according to them, the government does not negotiate with drug makers for lower prices.  I say “according to them” because they’ve gone to great lengths to make it sound like nobody is negotiating with the drug companies.  If you believe the naysayers out there, you’d think drug companies name their price and Medicare beneficiaries are forced to pay it.  That is so wrong it truly boggles the mind.


            Opponents of the Medicare drug benefit have gone to great lengths to make it sound like no one is negotiating.  To say there is no negotiation is nonsense.  Now it is correct, of course, that the Secretary himself does not negotiate with drug companies.  It is absolutely not correct to say that there is no negotiation.  That’s complete and utter nonsense.  It is embarrassingly wrong.


            I’ve said it before, and I’ll say it again:  having the government negotiate drug prices for Medicare might be a good sound bite, but it’s not sound policy.  H.R. 4 passed by the House falls into that category.  S. 3, the bill before us today is no different.


            At the beginning of the year, I expressed my disappointment that we were going to have to spend a lot of time on this issue when there are a number of other pressing matters before us.  We have reauthorization of S-CHIP.  We have the physician payment issue. 


            There are areas of the prescription drug benefit that I think we should devote some time to, and I filed a series of amendments.  Coverage of benzodiazepines, more funding for outreach and education, the asset test, pharmacy issues, that’s what we should be working on.  That’s where we could make a difference.  But, nevertheless, here we are considering a bill that like the House bill keeps the current law prohibition on instituting a particular formulary. 


            Expert after expert, whether they’re from the Congressional Budget Office, the Government Accountability Office, or academia, agree:  No formulary means no leverage.  No leverage means no way to get lower prices.  No lower prices means no savings.


            At a January Senate Finance Committee hearing, Professor Fiona Scott Morton said that without a formulary, the Secretary would have about as much negotiating power that you’d get by calling a drug maker and saying, “I would like you to offer a lower price.”  Their answer would be “Why should I, you have to buy my drug, so why would I offer you a lower price?”  About all you've got left after that is, “please?” and that’s not going to get you very far.


            Professor Scott Morton also pointed out the obvious, that we all want to obtain discounts on 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 was that if you’re half the market, the math makes it virtually impossible for your prices to be below the average. 


            Professor Scott Morton said that because Medicare is so large, if drug makers had to give it the lowest price they give any customer, they’d have a strong incentive to increase their prices for everyone 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.”  So, it’s great to help seniors, but there is no free lunch.  Everybody, regardless of age, will pay more for prescription drugs.


            A representative of the non-partisan Government Accountability Office (GAO) who also testified at the same hearing talked about its 2000 report on this issue, and echoed Dr. Scott Morton’s view.  In 2000, the GAO 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.”


            Now, one thing we keep hearing is that Medicare should not pay more than Veterans Affairs pays.  When asked what would happen if Medicare got the same prices that the VA gets drug makers witnesses agreed that it would likely raise VA prices for all drugs.  The VA itself expressed that same concern in a 2001 hearing before the Senate Committee on Veterans Affairs.  Higher prices for veterans?  I can't imagine that’s an outcome that people want. 


            Another key point made at the Finance Committee’s hearing was that it’s not simply about the number of people you’re buying prescription drugs for.  In response to a question I asked, Professor Scott Morton said it doesn’t matter whether you negotiate on behalf of one million people or 43 million people.  What matters is what leverage you have and how you use it.  And that goes back to the point that I made earlier about this bill:  the Secretary has no leverage.


            Don’t get me wrong, I’m not for a national formulary.  A single national formulary would limit access to drugs.  Today, beneficiaries have choices of formularies.  They can pick a plan that covers their drug.  But let me repeat.  No formulary means no leverage.  No leverage means no way to get lower prices.  No lower prices means no savings.  So for all the talk about getting savings from government negotiation, this bill takes away the key tool to get lower prices.  That was a key lesson from the January Finance Committee hearing.


            And here’s what the Congressional Budget Office said about the Chairman’s Mark for S. 3.  The Chairman’s Mark would have “a negligible effect on federal spending.”  Let me repeat that: “a negligible effect on federal spending.”  The CBO said, “Without the authority to establish a formulary or other tools to reduce drug prices, we believe that the Secretary would not obtain significant discounts from drug manufacturers across a broad range of drugs.”  That statement’s pretty clear:  what we’re being told will happen as a result of this bill, and that would be lower prices, isn’t going to happen.


            Now I want to go back and remind everyone where the prohibition on negotiation came from.  That’s the non-interference clause.  The opponents of the drug benefit seem to conveniently forget that their own bills had the same language and that they supported a benefit run by private plans.  In fact, the prohibition of government negotiation – the non-interference language – first appeared in a Democratic bill.


            In total, seven bills introduced and supported by 34 Senate Democrats and more than 100 House Democrats had the prohibition in them.  Seven bills.


            On top of that, many of the people who are now twisting that language around cosponsored those bills.  I also want to point out that even President Clinton’s proposal to create a Medicare prescription drug benefit took the same approach.  President Clinton said so many good things about having private plans negotiate lower drug prices for Medicare beneficiaries that I didn’t have to think up new things to say.  His plan was introduced by the late Senator Moynihan as S. 2342.


            Mr. Chairman, the Secretary does not need the authority to negotiate.  And a national formulary is a bad idea.  Under the drug benefit today, with the plans negotiating with drug makers and competing with each other, we have lower drug prices for beneficiaries, lower program costs for the government, and prescription drug choices for beneficiaries.  Competition is working.


            Mr. Chairman, with all due respect to my good friend from Montana, I know you want to do the right thing.  But this bill does nothing more than keep alive the political scam that Democratic leaders have committed against Medicare beneficiaries and the public on this issue.


            I do not support the Chairman's Mark and I urge my colleagues to vote against it.