What if Medicare could bargain over drug prices?

Aug 3, 2015

The government health care programs Medicare and Medicaid turned 50 this year. But, more recently, back in 2003, the feds expanded Medicare to include a prescription drug benefit. The law establishing that benefit specifically prevented Medicare from directly negotiating the prices for those drugs, which some say translates to higher costs for the program. The Obama administration and some members of Congress want to change that, but— not surprisingly, drug companies say things are just fine as they are.

At the Neighborhood Pharmacy in Washington, D.C., pharmacist tech Sapriece Barrett says about 30 to 40 percent of her clients use Medicare for their prescriptions. “You can really tell they’re juggling the medication, trying to figure out what they need and don’t need,” she says.

Barrett says even though Medicare premiums are relatively low and the co-pays only a couple of bucks, the independent pharmacy loses thousands of dollars a year trying to help bridge the gap when people can’t afford their medicine.

“Because we do try to help, we really do,” she says.

Some advocates say those premiums could be lower and Medicare much more efficient if the agency could negotiate directly with drug companies. Right now, the insurance plans that provide Medicare in different places do that negotiating. Dan Adcock is the director of Government Relations and Policy for the National Committee to Preserve Social Security and Medicare.

“These plans are so divided up into all these different fiefdoms,"he says, "they’re not getting the type of discounts on drugs they would be getting if they were using the entire Medicare population.” Adcock makes the comparison with the Veterans’ Administration and Medicaid, which negotiate for all of their members at once.

The Congressional Budget Office says Medicaid pays 27 to 38 percent less than Medicare for the most commonly used drugs.

But, “there is already robust negotiation that happens in Medicare,” according to Lori Reilly, the executive vice president of the Pharmaceutical Research and Manufacturers of America, the drug industry’s main lobbying group.

Reilly points out Medicaid and the VA have fewer prescription choices in their programs than Medicare. Plus, she says the individual providers are pretty good at haggling for drug prices.

“These are purchasers that negotiate on behalf of tens of millions of people," she says, "and they are able to achieve significant savings.”

But supporters of change point to a CBO estimate that Medicare could save over $116 billion over 10 years if it negotiated drug prices and rebates the way Medicaid does.

However, even if Medicare’s negotiating power is changed, CBO says the savings would eventually disappear, because drug companies would raise the prices of new drugs to compensate.

To Sapriece Barrett at Neighborhood Pharmacy,  every penny extra spent at the federal level eventually trickles down to extra costs for her customers.

"I don’t care how you look at it," she says. "At some point, somebody going to take the loss."

Some members of Congress have introduced a bill to give Medicare direct negotiating power, but it’s unlikely to move forward this session.