After a bitter legislative fight, the US Congress passed a $395 billion revision of Medicare, the health insurance programme for elderly people, which will come into effect in 2006.
The Medicare Drug Benefit bill institutes far-reaching revisions of the popular programme created in 1965. The addition of outpatient prescription drug benefits attracted support from many quarters. But the bill's inclusion of privatisation schemes created a bitter divide with critics charging that the bill is the first step toward the dismantling of Medicare.
President George Bush's administration supported the bill saying its provisions encouraging privatisation create competition that will keep costs down and give elderly people a better range of choices.
Soaring drug costs fuelled the battle over changes in Medicare. Drug prices in the United States, often four to 10 times higher than in Canada and Europe, triggered a movement to legalise the reimportation of drugs. But the new Medicare drug plan prohibits both drug reimportation and price negotiations by Medicare.
"[This bill] is a sweetheart deal to hand over huge amounts of money to the insurance and drug industries," says Steffie Woolhandler, associate professor of medicine at Harvard Medical School.
Thomas Scully, administrator of the Centers for Medicare and Medicaid Services (CMS), an agency that administers the federal health insurance schemes, rejected the idea of price negotiations with drug companies, saying it would amount to "price fixing.
" Larry Sasich, research associate with the Washington based citizen's lobby organisation Public Citizen, says that is precisely what the agency should be doing: "The government isn't negotiating with the private sector on drug prices like they do for the Department of Defense, the Veterans Administration, and the Indian Health Service." This failure to negotiate, says Mr Sasich, will ensure that drug prices stay high.
In a surprise move, the AARP (formerly the American Association of Retired Persons) endorsed the bill just days before the House vote. The association's president, Jim Parkel, contradicted the claim that the bill prohibits reimportation. Mr Parkel told the BMJ , "We did support and will support reimportation from Canada . . . There's nothing in the bill that precludes reimportation."
But Congressman Maurice Hinchey, Democratic representative of New York's 22nd district, said that the bill did prohibit reimportation, but that "it does it in a way that enables [Mr Parkel] to say it doesn't." He added: "The bill prohibits reimportation unless the Food and Drug Administration determines that the drugs that are imported are the same as the ones here in the US. But the FDA has already said they're not going to do that."
Drug companies lined up to support the bill. The Alliance to Improve Medicare, an alliance of drug companies and private insurers, spent $1.5m on print and television advertisements to promote the bill in the four weeks before the final vote.
The AARP's endorsement triggered protests by its membership and charges that the organisation has conflicts of interest causing it to betray its mission. "They've devolved from being an advocacy organisation to being an insurance company and drug store," said Congressman Hinchey. The AARP derived $636m from insurance related revenues in 2002, providing over a quarter of its total income. It also runs a drug programme for members.
Another provision of the bill provides incentives to encourage one million elderly people in six cities to join private health maintenance organisations from 2010—something critics say is a Trojan horse designed to wreck Medicare.
The "lion's share" of the money allocated by this bill, said Congressman Hinchey, will go into the coffers of private insurers. According to a study by Brian Riedle, published by the Heritage Foundation, a conservative think-tank promoting free enterprise, only 6-7% of the bill's $395bn allocation will be needed to cover overall increases in drug costs. Mr Riedle said that it is not clear how much money will go to insurers as some of the funding will be "transfer" funding to cover elderly people already insured by other programmes. Mr Riedle estimated that about $70bn of the total amount might go to private insurers, but he acknowledged that the amount is just a guess.
Previous Medicare experiments with health maintenance organisations have ended in disaster, according to a report by Public Citizen. The report found, among other problems, "2.4 million occasions where beneficiaries have been forced to look for new providers after their health maintenance organisations ceased providing service to them."
Dr Woolhandler, of Harvard Medical School, says private insurers don't streamline anything except patient care since health maintenance organisations (HMOs) earn greater profits by delivering fewer services. In addition, approximately 15-20% of HMO budgets go to administrative costs—compared with only 3 to 4% under Medicare.
The bill was largely supported by Republicans and opposed by Democrats. Republicans received 75% of the pharmaceutical industry's $27m ($15.9m; €22.7m) in contributions to politicians during the 2002 election cycle, according to the Center for Responsive Politics.