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New study shows Congress could cut Medicare drug costs

Wednesday, June 22, 2005

New study shows Congress could cut Medicare drug costs by negotiating prices

(Washington, D.C.) – A new Congressional Budget Office (CBO) study shows the dramatic savings the government – and taxpayers – could achieve in the planned Medicare prescription drug program if Congress required government negotiation of drug prices with the pharmaceutical industry, Consumers Union said today.
The CBO study found that the six federal programs that currently negotiate prices with manufacturers pay about half of the average wholesale price (which the CBO describes as “the list price”) for drugs. The Department of Defense was found to negotiate the lowest prices – about 41 percent of the average wholesale price for brand-name drugs.
“This clearly shows the staggering amount taxpayers would save if Congress required negotiation of drug prices in the Medicare program,” said Bill Vaughan, senior policy analyst for the Washington Office of Consumers Union. “Why shouldn’t we save the same money on medicines for our seniors that we now save for veterans and the military?”
The CBO report, requested by Sen. Bill Frist (R-TN), found that the price negotiated by the Department of Veterans Affairs for the “Big Four” – the VA, Department of Defense, the Public Health Service and the Coast Guard — is only 49 percent of the list price for sales of a drug by a wholesaler to a pharmacy. The VA and the DOD further negotiate price reductions that result in average prices of 42 and 41 percent, respectively, of the average wholesale price.
In passing the Medicare drug benefit, Congress specifically prohibited federal government negotiation of drug prices with manufacturers. Some members have since introduced legislation to require negotiation like that done by the VA, but the bills have not yet been considered. The Medicare drug benefit is scheduled to go into effect in January at an average cost of $72 billion per year.
Medicare discount drug cards have provided discounts to those who have enrolled that are modest when compared with the deep discounts achieved by the VA. Prescription drug plans under Medicare Part D, due to provide benefits beginning January 1, 2006, are likely to provide some discounts as well. Yet it is clear from the CBO report that the VA and DOD approaches to negotiating deep discounts should set the standard for the public to judge the level of financial relief achieved by the new program.
“Time is running out for Congress to save our seniors and taxpayers billions of dollars each year by negotiating prices with the drug companies,” Vaughan said. “This report proves the government can save money on prescription drugs. The question is why we aren’t doing it for Medicare beneficiaries.”
To view the CBO report, go to
For more information contact: Susan Herold, 202-462-6262