Is negotiating drug prices for Medicare an illusion?

Listen to the politicians and you will learn that allowing Medicare to negotiate drug prices will save tons of money; hundreds of billions according to Trump. Sorry, it doesn’t work that way.

You see, the plans that currently offer Part D coverage already negotiate drug prices and establish formularies of preferred and covered drugs in an effort to manage costs. And guess what, despite their rhetoric, the politicians know this too and they know what the CBO says.

Employer based plans also use pharmacy benefit managers that negotiate drug prices. Nobody with any form of prescription drug coverage pays anything close to published retail prices. 

And there is another factor. Guess what would happen if Medicare did squeeze drug companies for lower prices … the prices for everyone else would grow. 😷

Spending on drugs has two parts. The cost of each drug and the utilization of those drugs … Americans love their meds.

imageIf you don’t believe anything else about health care, believe this. A government-run system cannot control costs any better than the private sector UNLESS it imposes rationing. That may be limited choice of access, cost/benefit decisions on certain procedures, limited facilities such as available MRIs and longer wait times, etc. 

What has CBO said about the potential for savings?

CBO has said that giving the Secretary authority to negotiate lower prices for a broad set of drugs on behalf of Medicare beneficiaries would have “a negligible effect on federal spending.” It based this assessment on its view that the Secretary would not be able to leverage deeper discounts for drugs than risk-bearing private plans, given the incentives built into the structure of the Part D market, where plan sponsors bid to participate in the program, compete for enrollees based on cost and coverage, and bear some risk for costs that exceed their projections.

Beyond simply removing the non-interference clause and allowing the Secretary to negotiate drug prices, CBO has said that in order to obtain price discounts, the Secretary would need authority to establish a formulary that included some drugs and excluded others and imposed other utilization management restrictions, in much the same way that private Part D plans do. And yet, CBO has questioned whether the Secretary would be willing to exclude certain drugs or impose limitations on coverage, as private plans do, “given the potential impact on stakeholders.” Savings could also arise if the Secretary were authorized to set drug prices administratively or take regulatory action against companies that did not offer discounts of a certain magnitude. CBO has not estimated the potential savings associated with these options.

CBO has also suggested there is some potential for savings if the Secretary had authority to negotiate prices for unique drugs that lack competitor products or therapeutic alternatives, which would include many of today’s high-priced specialty drugs and biologics. Although this approach was included in President Obama’s proposed budgets for FY2016 and FY2017, neither the Office of Management and Budget (OMB) nor CBO scored any savings associated with this provision. Source: Kaiser Family Foundation Issue Brief.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s