Lemon Capitalism

The business lobby is boo-hooing that it can't charge Medicare whatever the hell it wants for prescription drugs.

Back in 2003, President George W. Bush was only barely able to get through Congress the legislation that created a prescription drug benefit under Medicare. The vote in the Republican-controlled House of Representatives, at 220-215, was especially tight. Twenty-five Republicans opposed the bill because it created a new government entitlement. In addition, 189 Democrats opposed the bill on the grounds that the new Medicare Part D program contained no mechanism to limit what Medicare would pay for drugs. When the chief Medicare actuary calculated that the bill would cost 25 to 50 percent more over 10 years than the $400 billion the Bush administrated had estimated, a White House official threatened him with firing if he shared that information with Congress. After the House vote, Rep. Nick Smith (R., Michigan) revealed that House leaders—Smith didn’t identify the specific offender before he was pressured into retracting—offered him a bribe on the House floor to change his vote from nay to yea. I spent much of 2003 and 2004 chasing this sordid story.

Today Medicare accounts for about one-third of the United States market in pharmaceuticals, but it was only last year that Congress was finally able to empower Medicare to negotiate volume discounts with drug manufacturers. That’s because congressional Republicans opposed putting any brakes on pricing, in total violation of conservative principles but very much in accordance with Republicans’ pro-business fealty. The conservative impulse to make government pay above-market prices to private companies to purchase goods or services (or, conversely, to charge below-market prices to sell goods and services to private companies) is a phenomenon I’ve come to think of as lemon capitalism. Now the Chamber of Commerce is boo-hooing in a lawsuit that it no longer gets to charge Medicare whatever the hell it wants. That’s the topic of my latest New Republic piece. You can read it here.