WASHINGTON – The ability of the federal government to negotiate drug prices with pharmaceutical companies is shaping up as the first healthcare policy hot button of 2007.

On January 12, the House of Representatives passed HR 4, the Medicare Prescription Drug Price Negotiation Act of 2007, by a 255-170 vote.

The bill faces an uncertain future in the Senate, and the day before the House vote the White House issued a statement indicating that President Bush would veto any legislation seeking to require drug price negotiation.

Several reports also surfaced in advance of the House vote suggesting that drug price negotiations would have only limited effectiveness and that current cost constraint approaches – particularly the Medicare Part D prescription drug benefit – are restraining drug prices.

HR 4, a bill to amend part D of Title XVIII of the Social Security Act, requires the Secretary of Health and Human Services to negotiate lower covered Part D drug prices on behalf of Medicare beneficiaries.

“Negotiating for lower prescription drug prices is a long overdue step toward making healthcare more affordable for Medicare beneficiaries,” said House Ways and Means Chairman Charles B. Rangel (D-N.Y.), one of the co-sponsors of the bill.

The White House said Bush would veto the legislation because it represents government interference that limits competition and access to life-saving drugs, reduces convenience and ultimately would “increase costs to taxpayers, beneficiaries and all American citizens.” The White House pointed to Medicare Part D as evidence that current policies are limiting drug prices.

Before the House passed HR 4, the Department of Health and Human Services reported that predicted Medicare costs for the Part D prescription drug benefit for fiscal year 2008 would be $189 billion lower than was originally predicted in 2003, when the benefit was created. Bids for the program are lower, and there has been a lower actual increase in drug costs, the agency said in explaining the revised estimates.

“Our new estimates provide clear evidence that consumer choice is working,” said HHS Secretary Mike Leavitt. “Government interference will result in fewer choices and less consumer satisfaction.”

In addition, an analysis by the Congressional Budget Office indicated the new legislation would have limited effectiveness in lowering federal spending. Drug prices are only one part of the equation in overall system costs, and the inability of the secretary to establish a formula would limit the leverage necessary to get major concessions on drug prices, the CBO said.

Some Republicans have said they might filibuster to block its passage.

Sen. Chuck Grassley (R-Iowa), in a flood of statements regarding the bill, questioned how a drug negotiation plan would work, since the bill doesn’t specify an approach.

“This is a bill of goods. It won’t work,” he said. “It’s bad for Medicare beneficiaries and other consumers alike. Nobody wins. I hope the Senate will defeat this bill, and if not, I look forward to a presidential veto.”