For any who might remain skeptical about our commitment to use well-designed competitive reform to strengthen Medicare, I just wanted to emphasize how widely we applied principles of competition in developing the entire proposal. Indeed, we followed the Presidents charge to build on the best ideas of the Medicare Commission to produce a proposal that is suffused with competition but would foster the right kind of competition that does not put the most vulnerable at risk. First, in our proposed drug benefit we categorically and unequivocally reject price controls in favor of competitive bidding by private-sector pharmaceutical benefits managers.
Price controls reduce incentives for research and development and are difficult to administer.
Instead, under our proposal, benefit managers would be selected through a separate competitive bidding process in each region of the country, and the bidding will be opened every few years to keep competition vigorous. This is the same approach used in the private sector. It is a system that will be administered entirely by private companies, just as is the case in large firms and the health plans for Federal employees today, and so it is in no way conducive to price controls. Private benefit managers would submit bids to provide the defined drug benefit, and these private managers would do all of the negotiation with drug manufacturers and pharmacies. It is also important to note that under our competitive reform proposal, if private plans can provide this benefit at a lower premium or can add to the drug benefit, it would provide another competitive incentive for Medicare beneficiaries to switch to more competitive plans.