It is not widely known, but for the last 15 years Medicare has been disallowed by law from negotiating lower drug prices.
In fact, most major nations from Canada to Japan have been negotiating much lower drug prices for its citizens.
In a free enterprise democracy, it is normal to negotiate between producers and users of virtually everything. How then could one industry be excluded from this normal process and then be given license to raise drug costs without control? The result is unbridled cost increases and huge profits for the pharmaceutical industry.
How Did We Take Capitalism Out of Our Drug Pricing?
The law, passed by Congress in 2003, ironically called the Medicare Prescription Drug, Improvement and Modernization Act (medicare.gov/medicarereform), was sponsored by Dennis Hastert and J Dennis with 20 Republican cosponsors. It was promoted by the chair of the House Energy and Commerce Committee, and it passed by a narrow margin. The next year the committee chair was named chief lobbyist for the Pharmaceutical Research and Manufacturers of America (PhRMA) at salary “rumored” to be $2 million a year (nytimes.com). Since 2003 multiple bills have been introduced by Democrats to reverse this law, but all have died in committee.
What happened to prescription drug cost after the 2003 law was passed? In 2000 the annual cost was $121 billion, and by 2005 the costs had nearly doubled to $205 billion. Since then the costs have risen to an estimated 2017 level of $360 billion a year (OpenSecrets.org). Pharmaceutical interests argue that layers of cost between the manufacturers, pharmacy benefit companies, and pharmacy companies add to the cost.
What Are the Chances for Reversal of This Unusual Drug Pricing Law?
At his news conference on January 17, 2017, President–elect Donald Trump said “the drug companies are getting away with murder” and that the country should negotiate to bring prices down (Washington Post). Representative Lloyd Doggett, chair of the Democrat’s Prescription Drug Task Force, said two weeks after that comment “Trump was cozying up with Pharma executives at the White House.” Later the White House stated that the administration is no longer considering negotiated drug prices (POLITICO).
More recently, after the HHS secretary Tom Price resigned, President Trump named Alex Azar as the new HHS secretary. Mr. Azar is a former president of a major division of Eli Lilly Pharmaceutical Company. Incidentally, the cost of Lilly’s Humulin Insulin rose 325 % between 2010 and 2015 (POLITICO).
In April 2018, the Centers for Medicare and Medicaid Services announced new drug plans for Medicare beginning in 2019 with the idea of lowering some drug costs. These include allowing generics to be added to formularies during the year rather than waiting until year-end, removing a requirement that new drugs must be “meaningfully different” from existing drugs making more plan options available, and clarifying the “any willing provider” requirement to increase the number of pharmacy options.
What Progress Has Been Made to Combat This?
On May 11, 2018 President Trump described his plan to lower prescription drug prices called “the most comprehensive plan to tackle prescription drug affordability of any president.” Despite his campaign promise to allow the government to negotiate lower drug prices, his present plan is to cut out the middleman, provide some new tools for private plans to negotiate discounts for Medicare beneficiaries, stop limiting pharmacists from helping patients save money, and speed the approval of over-the-counter medicines (Pear and Baker, NY Times).
A telling response was the sudden rise in pharmaceutical companies’ stock price after this announcement.
None of these changes address the problem of inability to negotiate with pharmaceutical companies for lower prices.
What Can I Do?
The likelihood of changes to the 2003 law, or other changes to Healthcare as we have outlined in our published essay, is not good. If you are concerned about this, you can find your congressman at https://www.congress.gov and send an email or call or visit and ask him or her where they stand on these measures.