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President Barack Obama unveils his plan for the nation's future fiscal policy at George Washington University in Washington, D.C. (AFP/Getty Images)

Obama Wants Medicare To Flex Muscle For Lower Drug Costs

by Scott Hensley
Apr 13, 2011

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President Obama came out swinging in the fight with Republicans over how much the federal government will spend in the future.

Medicare, the health program for the elderly, is a big target for budget-cutters in both parties. The Republican vision, as articulated by Rep. Paul Ryan (R-WI), would privatize and subsidize coverage for Americans now younger than 55.

Obama has different ideas. He rejected Ryan's approach and would keep Medicare fully part of the federal government. (Planet Money's Jacob Goldstein has the tale of the Ryan vs. Obama tape on Medicare here.)

Basically, Obama would take steps to reduce the costs of the Medicare rather than transform it. A prime target: drug spending.

Early on in his speech at George Washington University, Obama called out Republicans and Democrats for expanding Medicare to cover prescription drugs without paying fully for the increase in federal spending required to make it happen.

So one way to save money would be to use Medicare's clout to wring better prices from drugmakers. Or as Obama put it:

We will cut spending on prescription drugs by using Medicare's purchasing power to drive greater efficiency and speed generic brands of medicine onto the market.

That's a tall order. And it's a hard one to parse.

If Obama's to be taken literally, and he means, at least in part, that Medicare should start negotiating prices directly with drugmakers, the administration will run into a wall. The law that expanded Medicare to cover prescription drugs expressly prohibits direct price negotiation.

Another possibility would be caps on Medicare's drug spending. That's clearly what the brand-name drug trade group PhRMA is worried about. "Implementing government price controls in the Medicare prescription drug program would not achieve better patient care, sustainably cut the deficit, foster the development of future medical advances or grow the economy," PhRMA CEO John J. Castellani said in a statement. PhRMA also makes the point that Medicare Part D, the prescription drug coverage, is costing quite a bit less than originally expected.

Oh, and then there's Obama's plan for "generic brands," which is oxymoronic. Generics are the antithesis of brand-name drugs.

But if Obama means the feds will try to get generic versions of biotech medicines (or "biologics" in industry lingo) on the market faster — and that's where the big money is in the future — he's going to hit an industry buzz saw.

The current approach to patent protection for biotech medicines was part of the negotiations that led to the big law overhauling health care. The pharmaceutical and biotech industries did pretty well in return for supporting the overall thrust of the Democrats.

Again, PhRMAs Castellani weighs in:

Reducing the 12 years of data protection that was approved in strong, bipartisan votes by Congress - as the President has proposed - would seriously jeopardize innovative companies' ability to fund research on future treatments and cures. If the proposal were successful, the U.S. would then provide less data protection for new, innovative biologics than is currently bestowed in Europe.

The administration puts a bit more meat on the bone in this fact sheet. While the details are still a little sparse, the gist is clear: President Obama wants Medicare to squeeze money out of drugmakers.

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