Want to save $2.8B-plus? Medicare drug price negotiation could, senator reports

Drug prices
A new Democrat-drafted bill would allow Medicare the power to negotiate drug prices. (Getty/Charles Wollertz)

Federal law doesn’t allow Medicare to directly negotiate drug prices with pharmas. What if it did? A recent report from a U.S. senator found that Medicare bargaining could save Medicare Part D $2.8 billion a year on just the 20 most commonly prescribed brand-name drugs.

The new report, drafted by Sen. Claire McCaskill, D.-Mo., the top-ranking Democrat on the Senate Homeland Security and Governmental Affairs Committee, compared Medicare Part D spending on the 20 most commonly prescribed drug brands to the cost if those drugs were priced on par with the Department of Veterans Affairs, which does negotiate prices.

Even after applying an average 17.5% branded drug rebate, as published by the Centers for Medicare and Medicaid Services, and increasing federal prices to cover miscellaneous costs like dispensing fees, Medicare could still save $2.8 billion a year if prices of those drugs were federally negotiated, the report finds.

Drugs on the top-20 list include treatments for cardiovascular problems, diabetes and other chronic conditions, including GlaxoSmithKline’s respiratory drug Advair, AstraZeneca’s statin Crestor and COPD remedy Symbicort, and Johnson & Johnson’s clot-fighter Xarelto, as well as diabetes drugs Lantus, Januvia and NovoLog. In the five years from 2012 to 2017, the average list price of these drugs grew 59%, compared with a 44% increase in the feds' average negotiated drug price, according to the report (PDF).

In 2016, the Medicare program accounted for 29% of all U.S. retail prescription spending, and that share is expected to grow to 33% by 2026, according to CMS projections. However, the Part D program, from the day it was introduced, prohibits the secretary of Health and Human Services from interfering in price negotiations currently done by private insurance plans.

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“Getting bulk discounts is something every business does, and the fact that the federal government is prohibited from doing it for Medicare is unconscionable,” said McCaskill in a statement.

Because government purchases represent such a large share of the market, pharmas have compared direct Medicare negotiations with government-imposed price controls, which they argue would lead to fewer choices for patients.

The report comes on the heels of a new bill, dubbed The Medicare Drug Price Negotiation Act of 2017, which was introduced in Congress by Democrats; it would grant Medicare the power to negotiate drug prices.

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It also follows several drug price-freeze pledges from Pfizer, Merck & Co., Novartis and Roche after President Donald Trump and HHS Secretary Alex Azar swore actions against those jacking up prices without cause. The president himself had previously called for Part D negotiations on the campaign trail. But in his recent drug pricing policy blueprint, he resorted to much milder measures, including encouraging generic competition and novel pricing models, among others.

The FDA, for its part, is also brewing several measures to help bring down drug prices, even though medication costs do not fall within its job description. It is, for example, considering allowing importation of drugs approved outside of the U.S. to challenge off-patent drugs with no rivals.