Let States Lower Drug Prices

(Bloomberg View) -- Drug prices are too high, and Congress lacks the political will to do anything about it. These are two of the most uncontroversial assertions in the contentious debate about U.S. health care policy -- and they explain why states should be allowed to act on their own.

The high price of medicine is a familiar lament from presidents and pharmaceutical executives alike, and there is no shortage of viable suggestions for making them cheaper: The federal government should negotiate Medicare's drug prices and end tax breaks for direct-to-consumer drug advertising. It should restrict the coupons that drug companies give out to coax patients to choose expensive brand-name drugs. It should limit Medicare patients' out-of-pocket drug costs, police pay-for-delay deals that keep generic medicines off the market, and require that all drug prices be made public.

Yet Congress has failed to take up these proposals, and the prospects are dim for legislation anytime soon. So two states, Massachusetts and Arizona, have asked the federal government for permission to pick and choose which drugs they will cover for Medicaid beneficiaries. The idea is to save money by providing reimbursement for only the most cost-effective drugs.

As things stand, state Medicaid programs are required to cover all drugs that have been approved by the U.S. Food and Drug Administration. That gives them zero leverage to press drug makers to offer rebates beyond those that are federally mandated.

And state Medicaid drug expenditures have been rising fast. In Massachusetts, they've more than doubled in the past seven years -- to nearly $2 billion last year. It's a big reason why the state now devotes 40 percent of its budget to Medicaid. In other states, the share is 25 to 30 percent -- which is why, if Massachusetts and Arizona get permission to restrict medicines, other states can be expected to follow suit. 

A recent report from the National Academies of Sciences, Engineering and Medicine sensibly argues that all Medicaid programs should be able to exclude some drugs from coverage. Making such a change without depriving beneficiaries of essential treatments would take careful planning. States would need to create a process to accommodate patients with a demonstrated need for excluded drugs.

Most Americans want the government to take such action. So far, states seem to have greater motivation to do so than the federal government has. But the Centers for Medicare & Medicaid Services should cooperate by letting Massachusetts and Arizona proceed. Then Congress should take up other practical strategies to make medicines affordable.

--Editors: Mary Duenwald, Michael Newman

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.

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