Why Couldn't Medicare Negotiate the Same Drug Prices as the VA?

The Wall Street Journal reported on a new study showing that the price of the 50 top-selling drugs rose an average of 7.8 percent last year. The article discusses efforts to contain drug costs for Medicare beneficiaries by having Medicare negotiate prices directly with the industry.

While it presents the argument of an analyst saying that Medicare could negotiate sharply lower drug prices, it also presents the assertion of a Bush administration official that Medicare would be unable to negotiate lower prices than the private insurers operating within the Medicare program. It would have been helpful to point out that the Veterans Administration gets prices that average 40 percent less than the prices paid by by the insurers operating within Medicare. There is no obvious reason that Medicare, which represents a much larger share of the market than the VA, would not be able to negotiate prices comparable to the prices negotiated by the VA. In fact, Medicare could even arrange to have the VA negotiate prices on its behalf.

--Dean Baker