In its landmark report last year on the cost of health care, "Bitter Pill," Time magazine argued that the most effective insurance system in the nation is Medicare. That's because rather than negotiate prices down from hospitals' wildly inflated "chargemasters," as private insurers do, Medicare determines the actual cost of procedures and pays providers based on the averages.
But even Medicare can't control the runaway pricing of prescription drugs.
That's evident in a Sunday News story in May that found Medicare reimbursed 1,493 doctors and other providers in Lancaster County a total of $96.4 million in 2012 for "Part B" claims – doctor visits, tests and other treatments.
At the top of the list of Medicare reimbursements is an ophthalmologist, Dr. Roy D. Brod, who was paid more than $3.3 million in 2012.
Why does a retina specialist get more Medicare money than any other doctor in the county?
Dr. Brod says it's largely because he treats age-related "wet" macular degeneration, or AMD, by injecting a drug called Lucentis into patients' eyes. Lucentis costs $2,000 per dose. Dr. Brod, like other providers, is reimbursed by Medicare for the cost of the medication, plus 6 percent.
That's the hole in the Medicare safety net.
As Time pointed out in "Bitter Pill," Medicare is blocked by federal law from negotiating prices for prescription drugs. Instead, Medicare must pay the pharmaceutical companies' "average sales price" plus 6 percent. The average price is set by the company – not by Medicare.
In other words, drug companies charge what the market will bear. Increasingly, Americans can't bear the cost.
Drug costs in the United States are 50 percent higher for comparable medications than they are in other developed countries, according to a research firm, because unlike other nations, the United States does not cap profit margins for Big Pharma. The Time report contends the health care system could have saved $94 billion in 2013 – off total prescription drug spending of more than $280 billion – if we paid what other countries do for medicine.
That's not the only hole in the Medicare safety net. The federal insurance program for older Americans also can't decide whether one drug is more cost-effective than another.
So Medicare has to pay for Lucentis, the $2,000-a-dose drug that prevents AMD, even though Avastin, a cancer medication that is proving to be just about as effective as Lucentis for AMD, costs $50.
If Congress amended the law to allow Medicare to pay drug manufacturers the same way it reimburses doctors and hospitals, we could save billions in health care costs for older people.
For that matter, if Congress had enough backbone to limit profit margins for Big Pharma – not to mention for hospitals – the whole country's medical bill would be more manageable.
If "Bitter Pill" is right, Medicare does a far better job at holding down health care costs than any private insurer. But Medicare could be even more effective if it had authority to hold down prescription drug costs.
Diagnosis: The cost of medicine is making all of us sick.
Prescription: Congress needs to give Big Pharma its own bitter pill.