Should the Government Negotiate Prescription Drug Prices?

When Medicare Part D was passed in 2003, lawmakers included the “non-interference clause,” which essentially prevents the federal government from stepping in to negotiate prescription drug prices. Allowing the drug companies and private plans to negotiate prices lets the market forces work and has made the Part D program largely successful and one of the more solvent parts of Medicare.

But in current policy discussions in Washington, DC, prescription drug pricing remains a heated topic. Senator Krysten Sinema (AZ) has taken a stand against price controls that would allow the government to negotiate drug prices. Without the support of Senator Sinema and Senator Manchin (WV), negotiations on prescription drug price controls fell apart. Many free market advocates who support pharmaceutical research and innovation claimed victory.

But now, it appears that some of those policy ideas have been resurrected. A recent proposal would allow the government to negotiate the price of 10 of the most expensive drugs for Medicare starting in 2025. The number of drugs increases to 20 by the year 2028. It would also prevent drug companies from increasing the price of drugs more than the rate of inflation. Additionally, the proposal would cap the price of insulin.

Proponents are already discussing how to spend the “savings” that will allegedly come from negotiating drug prices. The real question is where will these savings come from? Why will the government be able to negotiate lower prices than a private company? It is supposedly because they will have the bargaining power of the entire Medicare program behind them. In reality, it will likely be the government setting a price for those drugs—little negotiating involved.

Price fixing by the government never works well. In regard to prescription drugs, it will come at the cost of the innovation of new drugs and life-saving treatments. Companies that invest in the research and development of new drugs have to be able to recoup that investment in order to continue funding such. Schemes to reduce the price of drugs make it harder for companies to do so, resulting in less capital for research and development of new drugs.

If lawmakers are truly interested in bringing down the price of prescription drugs, they should look at reforming the FDA approval process.  It currently costs millions of dollars and can take 10 to 12 years for a new drug to be approved by the FDA. Patients would also benefit from eliminating barriers to access like prior authorization and step therapy. This would also reduce spending on prescription drugs.

The non-interference clause was included in Medicare Part D for a reason. Efforts to eliminate it—even for just a handful of drugs—will open the door to a larger problem and undermine the pharmaceutical innovation this country is famous for.

For more information on prescription drug policy issues check out our State Legislator’s Guide to Prescription Drug Policy.

In Depth: Health

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