Congressional Democrats this week proposed an addition to US President Joe Biden’s social and climate spending legislation that would allow Medicare, the federal government’s health care program for elderly Americans, to negotiate with drug makers the cost of certain prescription drugs.
American consumers pay higher prices for prescription drugs than almost all of their peers in the developed world, a fact that generations of politicians and advocates have struggled in vain to change. If passed, the proposal making its way through Congress would make a dent, albeit a relatively small one, in this long-standing problem.
The plan under discussion would give Medicare officials the ability to negotiate prices on a slice of thousands of prescription drugs on the market in the United States, starting with around 10 drugs and capped at 20. Liberal members of Congress had initially hoped to grant Medicare Authority to negotiate the prices of up to 250 expensive drugs each year.
Although small, the number of drugs that would be covered by the proposal represents a disproportionate amount of the annual “spending” on drugs by Medicare patients.
A Kaiser Family Foundation study published this year determined that the top 10 selling drugs covered by Medicare Part D accounted for 16% of total net spending in 2019. Top 50 selling drugs – accounting for just 8.5% of all drugs covered by the program – accounted for 80% of expenses.
The top 10 drugs, according to the Kaiser Family Foundation, include “three cancer drugs, four diabetes drugs, two blood thinners, and one treatment for rheumatoid arthritis.”
Unlike many countries outside of the United States, where the government is able to negotiate drug prices and reduce the cost of a single national health care system, the landscape in the United States is highly fragmented. Most Americans with health insurance are covered by policies issued by for-profit private sector companies.
Americans 65 and older are eligible for Medicare, which replaces a private insurer, but with a few critical differences. For many years, Medicare did not provide coverage for prescription drugs, forcing Medicare patients to either pay for drugs out of pocket or seek third-party insurance coverage for their drugs.
In 2003, Congress created Medicare Part D, under which private insurers offered drug coverage that met minimum requirements set by the federal government. While this program has reduced costs for many seniors, the cost-sharing arrangements and design flaws mean that many beneficiaries continue to face crippling drug bills. One of the main reasons is that each insurance provider must negotiate prices with drug companies individually, rather than using the bargaining power of the Medicare population as a whole to insist on lower costs.
“Subsidize R&D for the world”
For years, proponents of change have pointed out that drug companies set prices in the United States well above those in other countries in which they sell the same drugs. A study this year by the Rand Corporation comparing the United States to 32 other countries found that drugs cost an average of 256% more in the United States.
“American consumers are subsidizing R&D for the world,” said Lovisa Gustafsson, vice president of the health care cost control program at the Commonwealth Fund, a think tank in Washington, DC.
The problem is compounded by the fact that Americans also bear a much larger share of the cost of their prescription drugs.
“Patients in the United States face much higher cost sharing than in many other countries. So just because they have insurance doesn’t mean that patients can actually afford the drugs they need now, ”said Gustafsson. “There’s poll after poll showing that 20-25% of Americans can’t afford the drugs prescribed to them by their doctor, or split the pills, or don’t fill the prescription, because they can’t just not afford it. And that’s even when they have insurance.
Put a lid on costs
An important part of the proposal submitted to Congress is that it would place an annual cap of $ 2,000 on user fees that Medicare patients can be charged for their medications.
The prospect of a cap on personal spending has been welcomed by many calls for reform, such as AARP, a large advocacy group for older Americans.
“There is no bigger problem affecting the wallets of seniors with Medicare than the ever-increasing costs of prescription drugs,” AARP CEO Jo Ann Jenkins said in a statement. communicated. “For decades, seniors have been at the mercy of Big Pharma. Allowing Medicare to finally negotiate drug prices is a big win for seniors. Preventing prices from rising faster than inflation and adding a cap to Part D will bring real relief to seniors with the highest drug costs.
Disgruntled pharmaceutical companies
PhRMA, a powerful trade group representing the pharmaceutical industry, reacted with discontent to the announcement of the proposal.
“If adopted, it will disrupt the same innovative ecosystem that has brought us life-saving vaccines and therapies to fight COVID-19,” said PhRMA President and CEO Stephen J. Ubl in a statement. “Under the guise of ‘negotiation’, this gives the government the power to dictate the value of a drug and leaves many patients with a future with less access to drugs and fewer new treatments.”
“While we’re excited to see changes in Medicare that cap what seniors pay out-of-pocket for prescription drugs, the proposal allows insurers and middlemen like pharmacy benefit managers to get away with it.” deal when it comes to reducing costs for patients at the pharmacy counter ”Ubl continued. “It threatens innovation and makes a broken health care system even worse. “
Are the industry’s claims exaggerated?
Many supporters of allowing the government to negotiate on drug prices claim that the industry’s insistence that it will hamper innovation is overstated.
One piece of evidence they point to is a study released by the Congressional Budget Office in August. CBO created a model in which pharmaceutical companies were faced with the following scenario: A policy is put in place that reduces the performance of their most profitable drugs by 15-25%.
The agency estimated the impact would be a reduction in the number of new drugs introduced to the market of only half a 1% in the first 10 years of the new policy. This would increase to an 8% reduction in the first three decades of the program.