Health and Human Services Secretary Tommy Thompson took one step in the right direction this week in reducing the price for cancer drugs under Medicare, but the step now leads naturally to two more. The lowered reimbursement should be accompanied by an overall review of costs to physicians and it should inspire the administration to rethink its opposition to negotiating drug prices for other medications.

In announcing the new payments, scheduled to begin in 2005, Secretary Thompson noted, “it took George Bush and a Republican-led Congress to act.” Given that Congress can’t pass legislation without at least some of the majority party supporting it, this is true, but members of both parties in the House, including Rep. Tom Allen of Maine, had already supported HR 1622, the Quality Cancer Care Preservation Act, which represents a more comprehensive review of the cost structure. It remains in a subcommittee of the Ways and Means Committee because it lacked support to move further.

Doctors themselves acknowledge that the government currently reimburses for cancer drugs at a higher rate than what drug companies charge them, but argue that Washington does not adequately reimburse them for other costs, such as for required nursing care, equipment, administrative expenses, so the overpayment is fair. This cross-subsidization within Medicare is fairly common, but it is a confusing and complicated way to pay for care.

The danger to the government of opening up this range of services to review is that it might result in actually adding cost to the Medicare system rather than netting anything like the $530 million savings the secretary announced with the drug-payment reductions. Doctors quoted in news stories said the significant drop in payments – some drugs would drop as much as 80 percent – could force them to stop providing outpatient services and instead send their patients to a hospital for treatment.

Nevertheless, the prices – the real prices, not just what the drug companies assert – should reflect actual costs to doctors if for no other reason than patients must pay 20 percent of the total charge. But the change must also be comprehensive to maintain the quality of care and ensure patients continue to have access to it.

When Congress passed the Medicare drug benefit it told Secretary Thompson that he and his successors “may not interfere with the negotiations between drug manufacturers and pharmacies and [prescription drug plan] sponsors” and “may not require a particular formulary or institute a price structure for the reimbursement of covered Part D drugs.” That means, no government negotiation on the prescription drugs Medicare recipients would get under the new benefit.

Major private health plans, of course, demand lower prices for the people they insure, which saves the insured money through lowered premiums and copayments. Congress, after intense lobbying from drug manufacturers, denied the same savings to many of the nation’s elderly. Its decision adds to the overall cost of Medicare and puts it in more precarious financial condition that could result in fewer care choices and less treatment.

Secretary Thompson is right to begin to straighten out some of the payment rates under Medicare, but the tangle goes further than just how much doctors receive for cancer drugs. It was a tangle made worse when Congress restricted the government’s ability to negotiate prices and could wind up costing seniors.