Medicare is finally flexing its purchasing power by negotiating the prices it pays for 10 drugs that treat cancer, arthritis, diabetes and heart disease. Why did it take so long?
By George W. Chapman
It took the passing of the Inflation Reduction Act (I.R.A.) to authorize price negotiations of drugs with pharmaceutical companies.
So why did it take, literally, an act of Congress to negotiate drug prices, especially considering that some 80% of us are in favor of Medicare’s ability to negotiate prices?
Well, 20 years ago, then-President George Bush signed a law prohibiting Medicare from negotiating drug prices.
That is the penultimate (or maybe worst?) example of the absurd amount of influence Big Pharma lobbyists have on our elected officials.
While negotiations are underway, Big Pharma has filed multiple lawsuits to block the government from implementing this part of the I.R.A. Big Pharma should consider itself lucky to negotiate considering Medicare does NOT negotiate prices with physicians and hospitals. Medicare SETS the prices for providers of care. So much for the AMA and AHA lobbyists. There is plenty of time for the litigation to play out as the prices won’t take effect until 2026.
Big Pharma argues that negotiating prices (remember, on a whopping 10 drugs) will lower their profits and thereby negatively impact innovation.
Interestingly, drug manufacturers spend far more on stock buy backs than innovation or research and development.
Several competing drug manufacturers sell drugs that combat diabetes, cancer, heart disease, etc. The “winner” of the price negotiation or lowest bidder could capture more if not all the market for the drug and thereby actually increase profits.
Big Pharma won’t even use the term “negotiate” as it spins this all as “big government price controls.” If negotiating a paltry 10 drugs with Medicare will reduce profits, why then do drug manufacturers negotiate prices with just about every country (England, France, Germany, Canada, to name a few) with national or universal healthcare? It’s because those countries have not tied their hands with laws that prevent them from negotiating and employ their substantial purchasing power to keep prices down and lower costs to taxpayers to whom they have a fiduciary responsibility. It should be noted that all the countries listed have a much lower cost of care per capita than the U.S. and a lot of that can be attributed to paying far less for drugs. There is a lot of moaning from both sides of Congress about government spending. So why are we tying the government’s hands when it tries to act like a business?
Medicare patients spent over $3 billion (with a “b”) out-of-pocket last year on just the 10 drugs being negotiated.
Lower prices mean less out-of-pocket. Period.
More savings for taxpayers are on the horizon when Medicare can negotiate 15 prices in 2027-28 and then 20 after that. The severely limited number of prices that can be negotiated and the painfully slow implementation timeframe shows how difficult it was to pass the I.R.A. due to intense Big Pharma lobbying.
You would think it a slam dunk to allow Medicare to negotiate ALL drug prices. We have almost 65 million seniors on Medicare. That exceeds the total population of Canada which is about 38 million. Yet Canada, with far less purchasing power, negotiates all drug prices where it can. If we had a national health plan covering us all, Medicare would be negotiating prices on behalf of 334 million people. Medicare was about 10% ($888 billion) of the federal budget in 2021. 46% comes from general revenues, 34% from payroll taxes and 15% from beneficiary premiums. So, Medicare drug prices affect ALL of us, not just seniors.
No one really knows the price of a particular drug. It depends on whether you’re self-pay or covered by Medicare, Medicaid, or commercial insurance.
Commercial carriers or pharmacy benefit managers negotiate supposed discounts, but often off nebulous inflated prices quoted by the manufacturer. You never know if you’re getting a good deal. Basically, there just isn’t price competition among drug manufacturers as there is in most markets. Once Medicare negotiates a price, (which both parties agree to) it should finally provide the public some price transparency. The first 10 drugs Medicare chose to negotiate are: Eliquis blood thinner; Xarelto blood thinner, Januvia for diabetes; Jardiance for diabetes; Enbrel for rheumatoid arthritis; Imbruvica for blood cancer; Farxiga for diabetes, heart failure and kidney disease; Entresto for heart failure; Stelara for psoriasis and Crohn’s disease; and Fiasp for diabetes. These 10 drugs account for $50.5 billion or 20% of total part D costs. (Part D drugs are taken at home while Part B drugs are administered in a provider office.)
If you consider Big Pharma contributions to the campaigns of our elected officials, you’ll understand why Medicare is limited to negotiating just 10 prices and not ALL prices.
The Senate (100 members) averages about $76,000 per campaign or about $7,600,000 over the course of staggered six-year terms.
The House (435) averages about $36,000 per campaign or about $15,660,000 over the course of staggered two-year terms.
These contributions are why the Inflation Reduction Act barely passed.
Apparently, getting reelected is more important than doing the right thing.
The top 10 elected officials receiving the most money from Big Pharma are from both sides of the aisle.
Newcomer senator Raphael Warnock from Georgia leads the pack at $770,000. He has a commanding lead over the rest. In second place is Cathy Rodgers from Washington at $419,000. The next eight are: Scott Peters, California, receiving $400,000; Catherine Masto, Nevada, $382,000; Tim Scott, South Carolina, $351,000; Patty Murray, Washington, $351,000; Mark Kelly, Arizona, $350,000; our Chuck Schumer at $345,000; Brett Guthrie, Kentucky, $343,000; and Maggie Hassan, New Hampshire, $273,000.
Drug companies can easily afford to pay 1,500 lobbyists and tens of millions to campaigns to protect their profits while hospitals and nursing homes, with little to no cash to spare, struggle to stay open.
Most galling is instead of considering themselves lucky to having to negotiate only 10 drugs while Medicare sets payments to physicians and hospitals, some of the drug manufacturers have decided to sue Medicare for restraint of trade and overreach.
Business negotiations over price are commonplace. Drug companies negotiate prices with all the countries with national health insurance.
But when Medicare flexes its muscle, they sue.
George W. Chapman is a healthcare business consultant who works exclusively with physicians, hospitals and healthcare organizations. He operates GW Chapman Consulting based in Syracuse. Email him at gwc@gwchapmanconsulting.com.