Administration Opposes Democrats’ Plan for Negotiating Medicare Drug Prices

Federal price negotiations would unravel the whole structure of the Medicare drug benefit, which relies on competing private plans, Mr. Leavitt said.

Dozens of plans are available in every state. They charge different premiums and co-payments and cover different drugs. The 2003 Medicare law explicitly prohibits the federal government from negotiating drug prices or establishing a list of preferred drugs.

Representative Nancy Pelosi, the California Democrat who is in line to become the House speaker, has said the House will take up legislation to repeal that ban in its first 100 hours under Democratic control. Senate Democrats have expressed a similar desire. The eight Democrats newly elected to the Senate all say Medicare should have the power to negotiate with drug makers.

“The government negotiates big discounts for the prices of drugs for our veterans,” said Senator-elect Amy Klobuchar of Minnesota. “But the drug companies got Congress to make it illegal to negotiate for lower prices under Medicare.”

Secretary Leavitt said he did not want the power to negotiate drug prices. “I don’t believe I can do a better job than an efficient market,” he said.

“We are seeing large-scale negotiations with drug manufacturers, but they are conducted by private drug plans, not by the government,” Mr. Leavitt said. “A robust marketplace with a lot of competitors has driven down prices. It’s the magic of the market. To assume that the government, in our genius, could improve on this belies the reality of a complex task.”

If a bill allowing negotiations got through Congress, it could face a presidential veto, depending on its details. Appearing on “Fox News Sunday,” Dan Bartlett, counselor to the president, said competing private plans had already brought down costs more than government price controls would have.

Democrats have not specified exactly how Medicare would negotiate with drug companies.

Senator Richard J. Durbin of Illinois, the assistant Democratic leader, has introduced a bill that instructs the secretary of health and human services to offer and operate one or more Medicare drug plans, in addition to those already available. The bill requires the secretary to negotiate prices with the manufacturers of drugs covered by the government-run plans. Ms. Pelosi is a co-sponsor of a similar bill.

At a news conference last week, President Bush said he wanted to work with the new Democratic majority in Congress. “I believe on a lot of issues we can find common ground,” he said.

In December 2005, just before leaving office, Mr. Leavitt’s predecessor, Tommy G. Thompson, said he wished Congress had given him the authority to negotiate prices for Medicare beneficiaries, as he negotiated discounts on antibiotics during the anthrax scare of 2001.

Health plans and pharmacy benefit managers use many tools to drive down drug prices. In effect, “you play one manufacturer off against another,” said James R. Lang, former president of Anthem Prescription Management, which administered drug benefits for five million people.

Insurers obtain discounts in return for increasing the use of a particular drug, and they can get bigger discounts by threatening to shift patients to a similar product made by a competing drug company, Mr. Lang said.

The approach that Mr. Leavitt described as unacceptable is already used in other government programs. Under federal law, drug makers must provide a discount, or rebate, equal to at least 15 percent of the average manufacturer price for most brand-name drugs covered by Medicaid, the program for low-income people. Federal law also guarantees discounts for the Department of Veterans Affairs, which negotiates with drug makers to secure discounts on top of those guaranteed by law.

Mr. Leavitt said the veterans program was not a good model for Medicare. The V.A., he said, has its own drug-distribution system and its own pharmacies and limits drug choices more than Medicare does.

Drug companies and some economists worry that if the government offered its own Medicare drug plan, it might insist on the “best price” offered to any private-sector purchaser of a particular medication. Medicare officials could then try to negotiate deeper discounts. But to do so, a government-run Medicare plan would probably have to establish its own list of preferred drugs, known as a formulary.

“For this to work,” Mr. Lang said, “the government would have to take over price negotiations. It would have to take over formularies. You can’t do one without the other. Drug manufacturers won’t give up something for nothing. They will want a preferred position on the Medicare formulary — some way to increase the market share for their products.”

Democrats said they were not seeking price controls or a uniform list of preferred drugs. “This is just good old-fashioned free market economics,” Mr. Durbin said. “If one buys in bulk, the price goes down.”

One potential obstacle to swift action is that some lawmakers, including Democrats, may want to hold hearings. Senator Max Baucus, the Montana Democrat poised to become chairman of the Finance Committee, voted in March against a proposal authorizing Medicare to negotiate drug prices. Aides said that he wanted to give the program more time to work, but that he was willing to consider such proposals.