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Letter to the Honorable Ron Wyden 1 (March 25, 2004)

handle is hein.congrec/cbo9268 and id is 1 raw text is: March 3, 2004 Honorable Ron Wyden United States Senate Washington, DC 20510 Dear Senator: On January 23, 2004, CBO stated in a letter to Majority Leader Frist that striking the noninterference provision (section 1860D-11(i) of the Social Security Act, as added by P. L. 108-173, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003) would have a negligible effect on federal spending. This letter responds to your question concerning the potential for savings if that provision were modified to give the Secretary of Health and Human Services authority to negotiate prices for single-source drugs for Medicare beneficiaries. Most single-source drugs face competition from other drugs that are therapeutic alternatives. CBO believes that there is little, if any, potential savings from negotiations involving those single-source drugs. We expect that risk-bearing private plans will have strong incentives to negotiate price discounts for such drugs and that the Secretary would not be able to negotiate prices that further reduce federal spending to a significant degree. Nevertheless, there is potential for some savings if the Secretary were to have the authority to negotiate prices with manufacturers of single-source drugs that do not face competition from therapeutic alternatives. Private plans offering a prescription drug benefit to Medicare beneficiaries will have less leverage in negotiating discounts for drugs without therapeutic alternatives than they have in price negotiations for drugs that do face such competition. (In that regard, the Medicare plans will be no different than private health plans that offer prescription drug coverage to other populations.) Under current law, there already are significant pressures that limit the prices that manufacturers charge for drugs-whether those drugs face competition from therapeutic alternatives or not. Those pressures include the prospects

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