How to Rein In Skyrocketing Drug Prices
(Bloomberg Opinion) -- The drug-pricing measure passed by the House of Representatives as part of its big tax-and-spending bill may seem unimpressive. A reflection of pared and compromised ambitions, it would initially let Medicare negotiate the prices of only 10 expensive prescription drugs — a fraction of the 250 covered by the Democrats’ original plan. It stands to save Medicare about $80 billion over 10 years — less than one-fifth of what was once envisioned.
Even so, this measure would be a game-changer. America’s prohibition of any bargaining by Medicare has long kept U.S. drug prices among the highest in the world. If the Senate goes along with this change, it would wedge the door open.
When Congress created the Part D prescription-drug program in 2003, it ruled out negotiation over prices. Private insurers could strike deals with drugmakers, but Medicare couldn’t use its enormous leverage — 48 million Americans participate in its drug benefit — to hold prices down.
The pharmaceutical industry’s oft-repeated defense is that unless drug companies are allowed to charge whatever the market will bear, they will be discouraged from discovering new medicines. In fact, big pharma companies rarely create new drugs, research has shown. Instead, they often acquire products that small companies and university and academic labs discover. The big drugmakers do invest in clinical trials and other work needed to bring medicines to market, but negotiated prices shouldn’t significantly affect this.
The Congressional Budget Office estimates that the House drug-price legislation would cause one fewer drug to come on the market in the next decade — and nine fewer over the subsequent 20 years. That’s a loss, but it needs to be weighed against the costs of the current approach. There’s no point in bringing new drugs to market if no one can afford them.
Americans are charged many times as much as Europeans and Canadians (whose governments bargain over prices). More than 80% of Americans — including more than 70% of Republicans — say they favor Medicare drug negotiation, even after listening to the drug industry’s argument about innovation, a Kaiser Family Foundation poll found. Outrage over U.S. drug prices led then-president Donald Trump to suggest that the U.S. benchmark its prices to those in Europe, Japan and Canada. Allowing the U.S. to strike better deals of its own would be simpler.
The compromise measure sets many limits on Medicare bargaining. The secretary of Health and Human Services would create a list of expensive drugs that have no generic competitors and that have been on the market for at least nine years (or 12 years for drugs made from biological sources). From that list, the secretary would choose 10 for negotiation in 2025, 15 in each of the next two years, and 20 in the years following.
These limited quantities could make an outsize difference, however, because a small number of medicines account for a large share of spending. Bloomberg Government examined possible candidates for negotiation and found several among Medicare’s most expensive. Eylea, a medicine to treat macular degeneration, for example, costs $10,851 per patient. Medicare spent $3 billion on this drug alone in 2019. It spent $4 billion on Xarelto, a drug to treat blood clots and one that would also be eligible for negotiation.
Negotiated prices on many such medications would introduce an important new form of cost control in uncompetitive corners of the prescription-drug market. If the spending bill ultimately survives a Senate vote and is signed into law, the drug-price measure will be among its most significant achievements.
Editorials are written by the Bloomberg Opinion editorial board.
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