Hillary Clinton and Donald Trump agree that Medicare bureaucrats must be freed to negotiate lower prices with pharmaceutical companies, and predict the billions of dollars in savings as a result. In this political era when common ground between these two adversaries must be revered, it is a pity that we note that both are wrong.
Unlike traditional Medicare system, which establishes reimbursement rates for thousands of procedures and services, the program benefits Medicare drug (Part D) use private companies to manage the needs of their 39 million members. The largest health plans in the country are participating in the Part D contract with one of the four key pharmacy benefit managers to negotiate prices with pharmaceutical companies.
These benefit managers do the same work for employers. For example, CVS Caremark administers drug benefits for nearly 65 million Americans, including millions of Medicare beneficiaries. Express Scripts, the largest of these companies, negotiate drug prices for the more than 85 million members.
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using their considerable weight of bargaining, pharmacy benefit managers have already obtained good deals for the vast majority of drugs on the market. It seems unlikely that Medicare officials can do better on their own. Who would you like to have the negotiating for you, an executive of the private company that represents 65 million to 85 million members, or government bureaucrat representing about half of many? The total costs of Medicare drug benefits are far below projections, a rarity for any government program. We will not spoil it.
So why do people believe drug costs are out of control and the need for government intervention? Because Prices have soared highly effective for some new and some older drugs that a small number of patients depend. For example, Express Scripts reported this spring that specialized patented drugs, including many cancer therapies, which are taken by only 1 to 2 percent of Americans now represent 37.7 percent of drug costs for their customers.
This is the monopoly power at work. The pharmacy benefit managers can negotiate effectively only way when several drugs are available to treat the same medical condition. The pharmaceutical company can dictate terms when you have the best, or the only, therapy market.
When Clinton Trump talk about Medicare and their influence to reduce prices, mainly cancer and other drugs target. But Medicare can not negotiate anything better than pharmacy benefit managers with pharmaceutical companies holding aces. Congress could pass a law imposing price controls federal, dictating what a company can charge. But that has its own set of negative effects, including reducing incentives for the development of new drugs and the creation of a new bureaucracy subject to pricing pressure from patient advocacy groups and manufacturers.
As we wrote in Magazine Analysis and Management Policy, there are better options.
- Medicare can encourage greater use of pay for performance contracts, where insurers and government payers agree to buy quantities of drugs, but receive refunds if the drug does not hit the quality objectives, such as reducing the average cholesterol levels by a certain percentage.
- In cases of curative drugs (as opposed to chronic, such as medicines for high blood pressure), Medicare could pay a premium for a pharmaceutical company to obtain a license, allowing a distribution much more wide and quickly realize the health benefits while ensuring incentives for the development of additional drugs.
- The FDA could increase competition in specialty drugs by approve more biosimilars. The agency has not yet issued clear guidelines about what a clinical trial is required by manufacturers of biosimilars.
- The Federal Trade Commission could require manufacturers justify short-term price increases for drugs that have long been on the market, but now they face little competition. It could also examine mergers or acquisitions of pharmaceutical companies to ensure that translate into operational efficiencies leading to lower prices, not price gouging.
These approaches are not a sound segment campaign. Instead, candidates must complete their calls for Medicare to negotiate drug prices. It is a distraction and a non-starter to reduce the cost of medicines.
Geoffrey F. Joyce, PhD, is director of health policy at the Leonard D. Schaeffer Center for Health Policy and Economics and professor at the Faculty of Pharmacy at the University of Southern California . Neeraj Sood, Ph.D., is director of research at Schaeffer Center and professor of public policy Public Policy Sol Price School of University of Southern California. A longer version of this article appeared in the Journal of Policy Analysis and Management.