Provision Allowing Medicare To Negotiate Drug Prices Part Of Reconciliation Legislation, But Fate Not Certain
By Shannon Benton, Executive Director
Prescription drug costs are a major concern for retired and disabled households as well as for government spending on Medicare and Medicaid. Pharmaceutical manufacturers are fighting back with a multi-million dollar lobbying campaign to maintain control of their secretive pricing practices, saying that allowing Medicare to negotiate would be Big Government “price setting.” But that’s not what has been proposed.
While numerous options are under discussion, one of the most widely discussed approach, a key feature of H.R. 3 (the Elijah. E. Cummings Lower Drug Costs Now Act) would not even apply to every drug. According to a brief by the nonpartisan Kaiser Family foundation, the negotiation process stipulated under H.R. 3 would apply to at least 25 drugs in 2024, lacking generic or biosimilar competitors, selected from a list of 125 drugs with the highest net Medicare Part D spending. The drugs would be selected on the basis of greatest savings to the federal government or individuals who would be eligible for the negotiated price.
A fair price for each selected drug would be determined by the lowest average price in one of the following countries —Australia, Canada, France, Germany, Japan and the United Kingdom) or 80% of the average manufacturer’s price if the selected drug has no international price, (such as a new drug). The proposal would establish an upper limit for the negotiated price of 120% of the Average International Market price. To give Medicare bargaining clout, companies choose to negotiate or, pay penalties. If a manufacturer offers a price that’s no more than the target price, the Secretary of HHS would accept this as the maximum fair price for the drug.
The estimated savings from this approach are quite substantial. The Congressional Budget Office (CBO) has estimated $450 billion over a 10-year time frame. In addition, the CBO estimates that lower drug prices would lead to lower Medicare beneficiary premiums and out-of-pocket costs for prescription drugs in Part D plans.
The CBO also estimates that the lower revenues from drug sales would lead to a lag in the introduction of new drugs, albeit a small lag. The CBO estimates that there would be 8 fewer drugs coming to market over the next 10 years, of the roughly 300 drugs expected to be approved during this period and 30 fewer in the subsequent decade.
Surveys by TSCL indicate that 85% of survey participants support allowing Medicare to negotiate prescription drug prices and 82% support restricting price increases to the rate of inflation.
Source: “What’s the Latest on Medicare Drug Price Negotiations?” Juliette Cubanski, Tricia Neuman, Meredith Freed, Kaiser Family Foundation, July 23, 2021.