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Medicare Reform Must Precede A Prescription Drug Benefit

IP-6-2000 (February 2000)
Testimony of Mitchell E. Daniels and Eli Lilly

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Usually the Independence Institute only publishes documents written by Independence Institute authors. We made an exception here because this material is an excellent explanation of the tremendous public health problems that would be created by President Clinton’s proposal for price controls on prescription medicines. Thus, even though we have no position on the author’s proposal to expand Medicare to include out-patients, we think that the author’s description of disaster that price caps would create is very much worth reading.

Testimony of Mitchell E. Daniels, Jr., Senior Vice-President of Corporate Strategy and Policy, Eli Lilly and Company, before the Special Committee on Aging of the U.S. Senate, Room 562, Dirksen Senate Office Building, Washington, D.C., 9:30 a.m., Tuesday, Feb. 8, 2000:

Thank you, Mr. Chairman and Senator Breaux, for your invitation to be part of this forum. I wish to commend the Committee for engaging in these critically important issues.

Your decisions about the future of Medicare and the addition of a prescription drug benefit will affect millions of Americans.

We at Eli Lilly and Company applaud Senator Breaux’s efforts to bring the outdated Medicare program into the twenty-first century. A great deal has changed since Lyndon Johnson signed Medicare into law 35 years ago, and the challenge is immense.

Our basic goal, however, is relatively simple: we must focus on the best interests of the patient. While tremendous strides have been made in medical technology over the past 30 years, comparable progress has not been made in the Medicare benefit structure. When Medicare began in the 1960s, pharmaceutical cures were the exception, not the rule. Long hospital stays were much more common, and outpatient surgery was generally unimaginable. Many conditions easily managed today were largely untreatable then. Preventive care was virtually nonexistent.

Medical advances of all kinds have allowed seniors to live significantly longer and healthier lives. Yet, as dramatic as these advances have been, we are on the brink of new discoveries that will bring even greater benefits. Fueled by advances in our understanding of the life sciences, these discoveries will dramatically improve doctors’ abilities to prevent illness and to heal and comfort those who suffer. It is imperative that we have in place a system that provides the benefit of these discoveries to the patients who need them.

If Congress were enacting Medicare anew today, the program would bear no resemblance to its current form. Medicare was designed to guarantee quality health care for our senior citizens, but it is now disconnected, uncoordinated, inadequate, expensive, and unresponsive. The program has numerous design flaws and perverse incentives that would be unthinkable to someone designing a modern-day health plan. And Medicare beneficiaries suffer as a result.

In many ways, Medicare fails seniors when they need protection the most. It does not include catastrophic coverage, hospital coverage decreases with length of stay, there are no long term care benefits, it does not pay for most preventive care and its cost-sharing requirements are disjointed. And the first dollar coverage provided by supplemental insurance creates incentives for seniors to utilize care inappropriately. The claims review and appeals process for denied claims is interminable — 524 days on average — and its regulatory burden is absurd. Unbelievably, Medicare’s rules and regulations are more voluminous than the tax code and pervade every sector of the medical system. For Medicare providers, innovation, efficiency, and quality are discouraged. Mastering the bureaucratic system is the more essential skill.

One glaring deficiency is the lack of coverage for outpatient prescription drugs. Pharmaceuticals play a central role in the modern-day practice of medicine. With the promise of future discoveries clearly in sight, pharmaceuticals may soon become the single most necessary component of health care, especially for seniors. Indeed, they may already be.

Medicare’s lack of prescription drug coverage is bad health care, bad public policy, and, apparently, bad politics. The absence of coverage for prescription drugs often creates perverse incentives that favor more costly and invasive treatments. While many seniors have prescription drug coverage from other sources, for some the financial burden of paying for their medicines is significant. This issue presents a significant challenge to both government and industry: we must find a way to ensure access for all our citizens to the breakthrough medicines that enhance and extend life, while at the same time maintaining today’s momentum and American leadership in the discovery and development of new cures.