Controlling Prescription Drug Costs: Regulation and the Role of Interest Groups in Medicare and the Veterans Health Administration

Medicare and the Veterans Health Administration (VA) both finance large outpatient prescription drug programs, though in very different ways. In the ongoing debate on how to control Medicare spending, some suggest that Medicare should negotiate directly with drug manufacturers, as the VA does. In this article we relate the role of interest groups to policy differences between Medicare and the VA and, in doing so, explain why such a large change to the Medicare drug program is unlikely. We argue that key policy differences are attributable to stable differences in interest group involvement. While this stability makes major changes in Medicare unlikely, it suggests the possibility of leveraging VA drug purchasing to achieve savings in Medicare. This could be done through a VA-administered drug-only benefit for Medicare-enrolled veterans. Such a partnership could incorporate key elements of both programs: capacity to accept large numbers of enrollees (like Medicare) and leverage to negotiate prescription drug prices (like the VA). Moreover, it could be implemented at no cost to the VA while achieving savings for Medicare and beneficiaries.