HEALTH CARE/Joan Retsinas

The General Motors Assumption, Revisited

General Motors and the United States Government. Charles E. Wilson had led the former. Could he lead the latter? Was there a conflict of interest? In 1952, a Senate subcommittee, leery of confirming Mr. Wilson as Secretary of Defense under President Dwight Eisenhower, asked Mr. Wilson whether he foresaw a conflict. He reportedly said "no," adding: "What is good for the country is good for General Motors, and what's good for General Motors is good for the country."

The fortunes of General Motors have slumped since the 1950s, when it was one of the nation's largest private employers. Indeed, if only government had insisted on fuel-efficiency standards, America's automakers might have retooled for the smaller cars that Americans bought in hordes from foreign automakers.

Nevertheless, the tantalizing notion persists that Big Business and Uncle Sam are joined in a symbiotic union. What helps one helps the other, and vice versa.

But all truisms, no matter how tantalizing, are not always true. Sometimes Uncle Sam may be helping Big Business -- at the expense of us, the taxpayers.

You be the judge.

Consider drug companies under Medicare Part D. Medicare Part D offers a panoply of insurance plans for people over age 65. The law, though, has a "non-negotiation" rule: The government cannot negotiate with drug companies on prices. Instead, the law leaves it up to the individual plans to do the negotiating.

Almost a year into Part D, Families USA surveyed drug prices under Part D. They compared the 20 lowest yearly prices in the Part D plans with the lowest Veterans Administration prices. (The Veterans Administration has a long-standing practice of negotiating on prices.) For all drugs, the Veterans Administration paid less. The median difference was 46%. Fosamax, for instance, cost the VA $265; Part D plans paid $727. Actonel cost the VA $372; Part D paid $703. The comparison goes depressingly on. Furthermore, even during the first six months of the program, the private plans did not keep down drug costs. That, remember, was the promise of the legislation: Private plans would be forceful negotiators. For the first 6 months, Part D prices increased roughly 3.7%, mirroring the average wholesale price increase. The middlemen behind the Part D plans -- Humana, Blue Cross, AARP -- may have negotiated, but not very forcefully.

The "non-negotiation" rule extends to state Medicaid offices. Robert Pear (New York Times, July 18, 2006) describes the mini-boondoggle. Before Medicare Part D, states had covered drugs for older people on Medicaid: States paid about half, the federal government paid about half. Now states can fold their programs into Part D. At first glance, Uncle Sam is helping cash-strapped states. But under the old status quo, states negotiated directly with pharmaceutical companies -- that was how states kept Medicaid costs manageable.

No more negotiating. No more deep discounts. At the end of the year, drug companies may reap as much as $2 billion from Medicaid.

So it's back to Charles Wilson's much-vaunted government-industry symbiosis. This time the symbiosis looks more parasitic.

With Medicare Part D's "non-negotiation" rule, the government enriched the drug companies. If the legislation had permitted Medicare, as well as state Medicaid offices, to negotiate, would the companies have bowed out of Part D? That is unlikely. The designers of this non-negotiation clause can point to no overriding public interest. As for taxpayers, they end up paying more. I see no benefit in that. I doubt even Charles Wilson would.

Joan Retsinas is a sociologist who writes about health care in Providence, R.I. Email

From The Progressive Populist, September 1, 2006

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