Intelligence Authorization Act for Fiscal Year 2007--Continued

Floor Speech

INTELLIGENCE AUTHORIZATION ACT FOR FISCAL YEAR 2007--Continued -- (Senate - April 17, 2007)

BREAK IN TRANSCRIPT

MEDICARE

Mr. GRASSLEY. Mr. President, earlier this year I gave a series of statements on this floor on the Medicare prescription drug benefit. Back then, I said I was informing my colleagues because in the near future Congress would consider some fundamental changes in how the benefit works.

Well, for the entire Senate, the future is now. Last week the Senate Finance Committee marked up legislation on the so-called prohibition on Government negotiations under the Medicare prescription drug benefit. When I gave these four statements during February, I said it was important for the public and also for Medicare beneficiaries to understand the proposed changes, and that it was equally important to explore the effects these changes would have.

Those reasons still hold true this very day. They are even more important now as the Senate gears up for action on that ill-advised legislation. I will inform my colleagues on this topic today, tomorrow, and the rest of the week, if I need to, because I want to make sure everyone understands the consequences of this legislation that is going to change the Medicare Program and hurt the Medicare Program, a program that is working; that if it ain't broke, don't fix it. I am willing to talk about this issue until I am blue in the face.

First, everyone should recognize that political opponents of the drug benefit that we call Part D of Medicare have tried for 4 years to tear this benefit apart since day one. Day one dates back to December 2003, when the President signed the bill. These naysayers feel Government can always manage better. They want a Government-run benefit program of drugs in Medicare, and they want the Federal Government dictating drug prices, as if the Federal Government can dictate drug prices.

Thankfully, the naysayers lost when that legislation was being considered. But that has not stopped them from constantly whining and carping about the drug benefit that is now law. The naysayers said there would be no prescription drug plans. Then when there were plenty of prescription drug plans coming into the system, approved by the Secretary of HHS to administer to the seniors of America, they said there were too many plans.

The naysayers said it was too confusing, that the seniors would not be able to choose plans, even arguing that there would be a small number of seniors signing up.

But the seniors have enrolled. In fact, 92 percent of the seniors in America are covered by a prescription drug plan. And what about their satisfaction? Interviews show a great deal of satisfaction on the part of seniors with the plans.

Then the naysayers suggested plans could change their prices and the drugs they cover at the drop of a hat, which has not happened. So the naysayers were wrong again. They did all they could to taint beneficiaries' views of the benefits before it even got off the ground. But the naysayers' biggest criticism of the drug benefit is that, according to them, the Government does not negotiate with drugmakers for lower prices.

Now I will show you how silly that is and how wrong that is and, more importantly, how misleading that is. I say according to ``them,'' meaning according to the naysayers, because they have gone to great lengths to make it sound as though nobody is negotiating with drug companies. If you believe the naysayers out there, you would think that drug companies name their price and Medicare is forced to pay it. That is so wrong that it truly boggles the mind. It seems to me, as I see these arguments, there is no embarrassment on the part of the naysayers' part.

Now, it is correct, of course, that the Secretary of Health and Human Services himself does not negotiate with drug companies, but it is absolutely not correct to say there are no negotiations. That is complete and utter nonsense. It is embarrassingly wrong. Under the Medicare drug benefit, multiple drug plans compete against each other for the membership of seniors and disabled people covered by Medicare. These plans compete to get the lowest prices from manufacturers, for you as a member, because they want to keep you as a member.

In fact, these plans want to be the best negotiators and to offer beneficiaries the best possible drug plan with low premiums, low cost sharing, and even with additional benefits. They compete to be the plan that beneficiaries want to join.

Now, is this something new? No, it is nothing new. This is the same approach used for health care benefits for every Member of Congress, and 3 million Federal employees, under what we call the Federal Employee Health Benefit Program. If beneficiaries do not like the job their plan is doing, you can fire your plan. You can leave it, join another plan. You can choose a better plan. Yet, you see, it is actually very simple how this works; very simple. Harnessing the power of competition among plans gives the Medicare Program beneficiaries and the taxpayers access to better negotiation than anything the Government could do on its own.

In fact, there are five negotiators out there that are negotiating in a bigger way than even the Federal Government can. Can you imagine that, there are five negotiators that are bigger than the Federal Government that were negotiating this? Competition, then, is the mainstay of our free market economy. Businesses compete every day in almost every sector of our economy to produce the products consumers most want at a price that consumers pay, which is probably what consumers can afford.

But the naysayers of the drug benefit somehow do not like that. They are uncomfortable with the free market. They want the Government to run everything. They want the Government itself doing the negotiation. They find it hard to believe anyone could do a better job negotiating than big Government.

Of course, along the lines, they are ignoring the simple fact that competition is working. They are ignoring that competition has led to lower premiums, $22 this year instead of $23 last year, instead of $37 when we wrote the legislation.

They are ignoring that competition is bringing choices to beneficiaries, those who said we would never have choice, that you could not use plans because plans would not work. You know what. Those very Members of Congress are wrong, because in my State there are 43 plans. Will there always be 43 plans? No, I imagine there are some that are small, will weed themselves out, will be bought. These people are ignoring that the Government is not actually very good at figuring out what it should pay for drugs. They are ignoring the fact to carry on with the political scam that they committed against beneficiaries and against the public.

I have a chart I used a month ago that I want to show again. On it is a quote from the Washington Post, recognizing as well, when it wrote the following in an editorial, that this is a political scam and that governments don't do a very good job of negotiating:

Governments are notoriously bad at setting prices, and the U.S. Government is notoriously bad at setting prices in the medical realm.

We knew this because of the Government's experience paying for drugs covered by Medicare Part B. There are not very many drugs covered by Medicare Part B, but there have been a few and over a long period of time. What did we learn from that experience of Part B Medicare? These happen to be the drugs that are given during a physician's office visit or other drugs such as oral cancer drugs. Medicare payments for these drugs were based on what is called the average wholesale price, AWP. It is similar to a sticker price for a car. No one actually pays that price on the sticker of a car. The joke was that average wholesale price or AWP actually stood for ``ain't what's paid.'' Over the past decade, reports issued by the inspector general, by the Department of Justice, and by the Government Accountability Office found that by relying on average wholesale price, Medicare was vastly overpaying for these drugs. Recommendations were made to change payments so they reflected actual market cost. The Clinton administration tried to make some of these changes but after pushback from providers, it backed off.

Congress took another run at this issue in 2003 in the Medicare Modernization Act and was successful. Congress reformed how Medicare pays these drugs under Part B, not Part D. Medicare now bases its payment for many of these drugs on a market-based price, a real price, not the average wholesale price, not the ``ain't what's paid'' price because it wasn't paid. This change, believe it or not, is saving the taxpayers and beneficiaries, but it took years to get that fixed. In all that time, Medicare and taxpayers paid too many dollars for drugs, wasted money, billions and billions of dollars wasted. So using the Part B tradition, we don't want to make the same mistake. We don't want to repeat that experience under the new Part D of drugs for Medicare.

We also knew Medicare overpays for a lot of other services and equipment.
The bookshelves are full of other reports from the General Accounting 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. For example, Medicare overpaid for durable medical equipment for years until the Republican-led Congress made changes in the 2005 Deficit Reduction Act. In addition, each year the Office of Inspector General issues what is called the Red Book, which presents cost savings recommendations. The books are usually 50 or more pages long, and the recommendations span all aspects of Medicare--hospitals, physicians, home health care plans, and others. This is more evidence of the many areas where Medicare doesn't get the best deal.

Congress has even created the Medicare Payment Advisory Commission, called MedPAC, to provide advice to Congress on payments for services. Every year, Congress hears recommendations from MedPAC to address Medicare overpayments, but many times it takes years for the Secretary of Health and Human Services or for the entire Congress to act to save the taxpayers money. In making recommendations, MedPAC looks at profit margins, for example. One type of provider had been found to have margins of 17 percent off of Medicare payments. The Congress has been able to act on many MedPAC recommendations, but it can be very hard to accomplish these changes. I remember when I was chairman of the Senate Finance Committee over the last 4 years. I received letters from Members saying something like: Please don't cut payments for this provider group or that provider group.

In fact, on the Senate floor just before recess, I fought to prevent this very Senate from freezing a Center for Medicare Services' rule that would have prevented wasteful spending in the program we call Medicaid. Is the rule a good thing or a bad thing? We didn't bother to hold the first hearing on the subject. The only thing that mattered was that a group of providers complained. Like the Clinton administration found, letters and complaints such as that can make it difficult, in the very short order, to do anything about a problem, despite the compelling evidence of overpayments, despite the high profit margins, despite the fact that a proposed change could save taxpayers billions of dollars.

Those of us who wrote the Part D Medicare drug plan passed 4 years ago--and that was mostly Senator Baucus for the Democrats and me for the Republicans--were concerned that this same kind of dynamic might happen with this Part D program. Political pressures on Medicare drug benefits would tie the hands of the Secretary of Health and Human Services. If that happens, the programs would be unmanageable and costs would skyrocket. Instead, Congress put competing private plans in charge of negotiating. These plans and their negotiators have years of experience in this arena. This is what they do for a living. Health and Human Services has had very little experience and a very dismal track record.

On this chart, these plans and their negotiators 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. Clearly, Medicare beneficiaries account for a large number of all prescriptions filled each year, so some might argue that 41 million beneficiaries have more clout than 75 million nonbeneficiaries, but numbers alone do not necessarily translate into lower costs.

As evidence of that, we had all sorts of experts come before the Finance Committee in January on this very topic. In response to questions I asked, particularly of Professor Scott Morton of Yale University, he said it doesn't matter whether you negotiate on behalf of 1 million or 43 million people; what matters is what leverage you have and how you use that leverage.

I think I ought to emphasize that. It is how you use the leverage. So it is what is done to leverage those numbers, then, that leads to lower costs. That leverage comes from the plan being able to say to a drug company something such as: I can get a better deal on drug A from a different manufacturer that has the same clinical effect as your drug B. If you can't match it or do better, then I am going to leave the table.

Some plans will get a better deal on drug A and put it in their formulary. Some plans will get a better deal on drug B. But many experts agree--and experience suggests--that it would be difficult for the Government itself, our Government, to walk away from the table. There would be enormous pressure to cover everything. If it did, the negotiating power lies not with the Government but with the manufacturers.

Here is what Professor Scott Morton said would happen if someone negotiating drug prices couldn't have a formulary:

Each manufacturer would know that, fundamentally, Medicare must purchase all products. The Medicare ``negotiator'' would have no bargaining leverage, and therefore, simply allowing bargaining on its own would not lead to substantially lower prices.

At the same hearing, we had another witness. That witness was Mr. Edward Haislmaier, of the Heritage Institute. I would like to quote him from his written testimony:

[that] volume purchasing encourages manufacturer discounting, it is not, in and of itself, sufficient to extract large discounts. Manufacturers will only offer substantial discounts if the buyer combines the ``carrot'' of volume with the ``stick'' of being able to substitute one supplier's goods with those of another.

In drug negotiations, that stick is called a formulary. Plans participating in drug benefits can use that stick. Expert after expert agrees it would be difficult, if not impossible, for the Government, however, to use that stick under Medicare. In fact, in a November 2 Wall Street Journal opinion piece, 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.

Let's be honest with each other. What do you think would happen in the Senate if the Center for Medicare Services, CMS, tried to cut a large drug company headquartered in New Jersey or North Carolina, for example, completely out of Part D because they wouldn't meet the Government's price demands? Would Senators from those States say something such as: Oh, well, that is just too bad? Would any of you say that if it was in your State that a manufacturer was being cut out? Again, let's be honest with each other.

What are we left with then? At the January Senate Finance Committee hearing, Professor Scott Morton said that without a formulary--the ``stick,'' as I refer to it--the Secretary would have about as much negotiating power as you would get by calling a drug maker and saying something such as: I would like you to offer a lower price. Their answer might be: Why should I? You have to buy my drug, so why would I offer you a lower price? About all you have left after that is: Please, won't you give me a lower price? That is not going to get you very far.

If my friends on the other side of the aisle think this bill is going to achieve real savings for consumers or the Federal Government, they must have some ideas in mind. I can't believe my friends would come to the Senate floor with a bill that is truly as ``do nothing'' as CBO describes it.

Here is what the Congressional Budget Office said about S. 3.

It would have ``a negligible effect on federal spending.'' Another quote:

Without the authority to establish a formulary, we believe that the Secretary would not be able to encourage the use of particular drugs by Part D beneficiaries, and as a result would lack the leverage to obtain significant discounts in his negotiations with drug manufacturers.

So let me repeat that other quote: It would have ``a negligible effect on federal spending.''

The bill we are considering and voting on tomorrow cannot possibly be as innocuous or inconsequential as what the Congressional Budget Office said. Certainly, there must be creative ideas out there to find savings we have not considered.

Since the Finance Committee's markup of S. 3 the other night, I have been considering how a Secretary might use his imagination to find savings. One of the first places we looked at was H.R. 4, the bill that passed the Senate.

H.R. 4 struck the language in the statute that prevents the Secretary from instituting a price structure for reimbursement of covered drugs. Did the House strike the ban because they want an imaginative Secretary to use price controls as part of negotiations? Because all we have heard is they do not want price controls.

Last Thursday night, we offered an amendment to S. 3 to prevent the Secretary from using a preferred drug list, or PDLs as they are called. A preferred drug list is just a formulary under a different name. It is essentially a Government-controlled list of drugs that you can or cannot have.

While I do not think there is a difference between formularies and preferred drug lists, we have seen the courts rule that a State can use one in Medicaid even though Medicaid bans the use of formularies.

So Thursday night, we had an amendment to prevent the Secretary from using preferred drug lists. After all, we do not want the Secretary coming up with a list of drugs you can or cannot take, do we?

To my surprise, the Democrats on the committee rejected my amendment. So what is going on? Perhaps they think that having the Government establish a preferred drug list is one of the imaginative ideas a Secretary will be able to use to save money.

I think this bill is a Trojan Horse. It is dressed up as a do-nothing message bill. But before the week is out, we are going to look inside that horse and see all the bad that could be waiting to hurt beneficiaries. We will see what is bad in this bill that will hurt access and choices beneficiaries currently have in this Medicare drug benefit program.

Maintaining access and choice--access and choice--is critical because beneficiaries have different drug needs. The way the benefit is structured now is that plans can have different formularies. Some might get a good price on one drug; another might get a better price on another drug. They can have different formularies, and beneficiaries can have choices that meet their needs.

When Congress finished work on the new drug benefit in 2003, we knew it was an experiment. Nothing like this had ever been tried. Here is what we learned: Private competition works. It has been successful at keeping costs down. The 25 most used drugs by seniors cost 35 percent less. Plan bids have come in lower than expected. This year, they were down 10 percent from last year's bids.

Premiums are lower than they were estimated to be. Before 2006, Medicare's chief actuary estimated the average monthly premium would be $37, but it was actually $23 in 2006. That is 38 percent lower than expected. Because of the strong competition between plans, the average premiums for beneficiaries is expected to be about $22 in 2007, not the $39 that had been estimated.

Why? Private competition works.

The net cost to the Federal Government is also lower than expected. In January, the official Medicare actuary announced 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. That is 2004 to 2013. That is a 30-percent drop in the actual cost compared to the projection.

Why? Because private competition works.

The savings are unheard of for a Government program of any kind. Where else have you ever heard of a cost underrun in a Federal program?

BREAK IN TRANSCRIPT

Mr. GRASSLEY. I wish to emphasize: We have a cost underrun in a Federal program. When have you ever heard of that?

You could not get those lower prices and lower costs unless the prescription drug plans are being strong negotiators with the drug makers. States are also saving money in lower contributions, better known as ``clawback'' payments. State clawback payments are now projected to be $37 billion less over a 10-year period. That is 27 percent lower. Just in 2006, States saved $700 million.

Why? Because private competition is working.

The plans are negotiating lower prices for drugs. I have said so many times, for the top 25 drugs used by seniors, the Medicare prescription drug plans have been able to negotiate prices that on average are 35 percent lower than the average cash price at retail pharmacies--35 percent lower.

Why? Because private competition is working.

Here are some examples: Lipitor is 15 percent lower, Atenolol is 63 percent lower, while Fosamax is 30 percent lower. I could go on down the list.

Now, when the drug benefit was signed into law, we believed it would work and hold down costs. That is certainly happening today even more than we expected because private competition works.

We also said that if it did not work--if the negotiating model used for the drug benefit did not hold down costs--then Congress would need to reexamine things. If costs grew too fast, then the whole idea 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.

But that is not the position we are in today. Why? Because private competition works.

I hate to sound like a broken record, but I think the naysayers out there need a little repetition therapy. Everyone has heard the old saying that ``if it ain't broke, don't fix it.'' It certainly applies here, and the evidence shows it.

I would like to be the first one to say that the Medicare drug benefit is not perfect. There are improvements that can be made. Congress should look at ways to make it easier for low-income beneficiaries to get the additional assistance they need by reexamining the low-income subsidy asset test.

We need to look at payments to pharmacies and make some reforms in that area. We need to look at ways we can simplify the enrollment process. And there are other areas where we can make improvements.

But one area that is working very well is the negotiating power of Medicare drug plans. They have shown their ability to hold down costs. It is working.

The pleas from the naysayers to put the Government in charge of negotiating are about politics, not policy. These voices have not given up in their misguided quest to score political points with the drug benefit. It saddens me the Democratically controlled Congress has devoted so much time to this issue rather than looking at some of the improvements we can make in Part D that I mentioned.

Why they have put politics ahead of constructive changes is beyond me.

In January, I had hoped we could put politics aside and focus on some of the real improvements we could be making with the drug benefit. But, sadly, that is not the case, and that is why I am here today.

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--saving the taxpayers money--and prescription drug choices for beneficiaries.

Private competition works.

Mr. President, I urge my colleagues to oppose S. 3. It is a big government takeover of the private market that is working for the Medicare benefit.

I yield the floor.

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