Will Medicare Negotiate Lower Drug Prices for You?

Over the past decade, drug prices in the United States have grown well above the rate of in inflation. This phenomenon has caused many consumers, including many seniors (who have been particularly affected by the high prices of medication) to doubt the integrity of the pharmaceutical industry. The senior community experiences higher rates of chronic conditions requiring them to take medication. According to research from AARP, 90 percent of prescription drugs doubled in price between 2005 and 2015. This community will consistently pay higher prices for drugs for years to come.

Climbing prices have caused a feeling of resentment towards pharmaceutical companies from the American public in general, as they may feel drug companies do not have their best interests in mind. According to a 2015 poll conducted by the Kaiser Family Foundation, 72 percent of Americans feel that drug costs are unreasonable, and 74 percent believe that pharmaceutical companies put profits before consumers. Some advocate that allowing Medicare to negotiate drug prices could help defray the impact of drug price increases. Several government programs can negotiate directly with pharmaceutical companies so that they may provide drugs at the lowest possible price to program beneficiaries. For example, the U.S. Department of Veterans Affairs (VA), can negotiate drug prices and receives mandatory rebates from companies. Medicaid drug prices are either discounted or set at the lowest amount negotiated.

A rule implemented in 2003 as part of the Medicare Modernization Act (MMA) currently prohibits Medicare from negotiating with pharmaceutical companies. In the uncertain healthcare environment of the United States today, some policymakers have proposed eliminating this rule, which would open the possibility of direct negotiations between pharmaceutical companies and the Medicare program. Those proposing the change hope to alleviate the cost of drug prices for seniors, which, according to an AARP Rx Price Watch Report, have climbed to an average of $5,800 per drug per year. However, supporters of keeping this rule in place believe that the change in drug prices paid by seniors will be marginal at best, or are concerned the change could stifle research and innovation in the pharmaceutical sector.

Supporters of the anti-negotiation provision cite several arguments. Some feel that the higher prices of drugs encourage innovation, particularly for drugs used by senior citizens. Another argument in favor of preserving the status quo points to the negotiation system in place at the U.S. Department of Veterans A airs (VA). Critics of the VA’s approach assert that it prevents the VA from obtaining the newest and most effective treatments, in order to cut costs.

Advocates for a rule change disagree that prices are justified because of research and development. Sen. Amy Klobuchar (D-MN), one of the lawmakers who introduced the proposed rule change, said that “Because Medicare is barred from negotiating discounts, seniors face inflated prices for their medications, while the pharmaceutical industry gets a financial windfall.” Her statements follow a widely-held belief that drug price increases exceed the cost for research and development. According to Bureau of Labor Statistics data, between 2010 and 2016 the price of prescription drugs rose by 24 percent; however, the average inflation rate between 2010 and 2016 averaged 9.3 percent. The discrepancy between the two rates is typically attributed to the research and development costs behind introducing a drug, but many, including Sen. Klobuchar, believe that high drug prices go beyond these initial costs.

Those who argue for the repeal of this rule believe
that it will significantly lower drug prices for seniors. Medicare could potentially use its massive size and scale to negotiate for lower prices for the more unique and specialized drugs that are typically utilized by seniors. Health Affairs researchers assert that lower drug prices will be a necessity in the future, because the aging Baby Boomers gaining Medicare eligibility will lead to skyrocketing costs for the program. Eliminating this rule could offset some of those additional costs. The Health Affairs research projects that by the end of 2017, National Health Expenditures (NHE) will reach nearly $4.3 trillion and NHE will account for 19.5 percent of GDP. Those who propose the repeal of this rule also believe that drug makers have sufficient incentive to go through the strenuous development and approval processes because Medicare is such a large buyer of medications.

At the heart of the debate lies the balance of reducing the cost of drugs for consumers, while also maintaining the innovation that will allow pharmaceutical companies to develop new and more effective treatments. The direction of U.S. policy in regard to this rule will be instrumental in determining the future of the prices Medicare patients pay for their medications.

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