NEW YORK CITY (NYTimes Editorial) January 12, 2007 — From all the ruckus raised by the administration and its patrons in the pharmaceutical industry, you would think that Congressional Democrats were out to destroy the free market system when they call for the government to negotiate the prices of prescription drugs for Medicare beneficiaries. Yet a bill scheduled for a vote in the House of Representatives today is sufficiently flexible to allow older Americans to benefit from the best efforts of both the government and the private drug plans.

The secretary of health and human services should be able to exert his bargaining power with drug companies in those cases in which the private plans have failed to rein in unduly high prices — leaving the rest to the drug plans. The result could be lower costs for consumers and savings for the taxpayers who support Medicare.

Under current law, written to appease the pharmaceutical industry, the government is explicitly forbidden from using its huge purchasing power to negotiate lower drug prices for Medicare beneficiaries. That job is left to the private health plans that provide drug coverage under Medicare and compete for customers in part on the basis of cost.

The Democrats’ bill would end the prohibition and require — not just authorize — the secretary of health and human services to negotiate prices with the manufacturers. That language is important since the current secretary, Michael Leavitt, has said he does not want the power to negotiate.

No data is publicly available to indicate what prices the private health plans actually pay the manufacturers. But judging from what they charge their beneficiaries, it looks like they pay significantly more for many drugs than do the Department of Veterans Affairs — which by law gets big discounts — the Medicaid programs for the poor, or foreign countries.

The administration argues, correctly, that the private plans have held costs down and that there is no guarantee the government will do any better. The bill, for example, prohibits the secretary from limiting which drugs are covered by Medicare, thus depriving him of a tool used by private plans and the V.A. to win big discounts from companies eager to get their drugs on the list. The secretary does have the bully pulpit, which he can use to try to bring down the cost of overpriced drugs.

The bill also does not require the secretary to negotiate prices for all 4,400 drugs used by beneficiaries. A smart secretary could simply determine which prices paid by the plans seemed most out of line with the prices paid by other purchasers and then negotiate only on those drugs. The private plans are explicitly allowed to negotiate even lower prices if they can. This sort of flexibility should pose no threat to the free market. It is time for the Medicare drug program to work harder for its beneficiaries without worrying so much about the pharmaceutical companies.