The government could, and should, save billions on Medicare drug prices

Americans could save billions if federal lawmakers follow through with their promise to negotiate drug prices. Despite the bipartisan support for such a notion, there has been little effort to do so.



October 14, 2021 - 9:52 AM

When the Biden administration proposed allowing the federal government to negotiate Medicare drug prices earlier this year, the nonpartisan Congressional Budget Office estimated the result would be drug price drops of between 57% and 75%. In 2019, when the Trump administration proposed doing the same thing, the nonpartisan Commonwealth Fund found that negotiating prices would cut premiums for Medicare drug plans by about $117 billion between 2020 and 2029.

So why are policymakers still fighting about this seemingly simple change? Money.

While most players in American health care are theoretically interested in controlling costs and improving care quality, absolutely no one is willing to cut his or her own salary to do it. At the moment, a great many people earn a salary based on the current method of paying (or overpaying) for drugs used by Medicare patients.

Negotiating drug prices means creating a national drug formulary for Medicare — a list of covered drugs and what the government is willing to pay for them. If a drug maker refuses to cut prices, the drug would be excluded from the formulary. That’s how large employers negotiate prices, and it sometimes results in pushback when their employees are prescribed drugs that aren’t on their drug formularies.

It’s worth recalling how America got to a position where virtually everyone knows how to save money but no one wants to make the necessary changes for fear of alienating Medicare patients. Medicare didn’t cover prescription drugs used outside the hospital at all until 2003, when a Republican-led Congress passed the Medicare Part D drug benefit.

That law specified that the drug benefit could only be delivered through private insurance companies and that the federal government could not negotiate drug prices. At the time, Republicans said they worried that the federal government, already the largest purchaser of medications, would bully big drug companies.

The no-negotiations strategy was linked to another provision of the bill that required Congress to make adjustments to Medicare, including possible benefit cuts, if it exceeded certain spending benchmarks. Making Medicare overpay for drugs would have opened the door for Republicans to make other changes to the popular program that they had long opposed. But once Congress added a Medicare drug benefit, it had no more stomach for making other changes.

The Biden administration’s plan for lowering drug prices is crucial because the savings would help pay for his multitrillion-dollar “Build Back Better” initiative on infrastructure improvements. Both savings for seniors and investments in highways, bridges and improvements to the energy grid are possible if Americans stop overpaying for Medicare drugs.

The federal government currently pays for drugs for 58% of the population enrolled in Tricare, Medicaid, Medicare and the Children’s Health Insurance Program. Negotiating prices on a few dozen drugs would save hundreds of billions of dollars per year. Congress should make this change without delay.