Several senators are drafting legislation to fix the prices of Medicare prescription medications as negotiations on their tax and spending bill. As Senators are working on a legislative proposal to have the government fix the prices of Medicare prescription drugs as negotiations on their tax and spending bill continue. Despite some differences from earlier versions, the indisputable result of the 190-page amendment is the same: Reduced patient access to prescription drugs.
Many provisions are included in the draft proposal, including detailed data collection, new mandates, tax penalties on drug manufacturers, and free vaccines. But it is the creation of the Drug Price Negotiation Program that is the heart of the bill, which will be run by the Secretary of the Department of Health and Human Services (HHS).
Initially, 10 drugs or therapies would be subject to “negotiation,” then 15 in 2027, then 20 in 2029. Each year, the selected drugs would be ranked according to how much Medicare spends on them for “negotiation” and government price setting, and it would be ranked according to which drugs incur the most spending.
For any selected drug, the Secretary must seek the lowest maximum fair price. An offer will be made by the Secretary; the drug manufacturer may counteroffer, but the Secretary may not accept an offer that conflicts with a government formula setting a drug price ceiling. It is more of a coercive process than a negotiation.
Biotech drugs, orphan drugs, and drugs with low Medicare spending would be exempt from this rule, and biologics would be subject to a separate negotiating process. The legislation would penalize drug research and development firms for violating its provisions, but the federal courts would not be able to review the Secretary’s selection of drugs.
Prescription drug price controls are just the latest iteration of an old policy that replaces private sector negotiations with price controls. Government price controls would have also been imposed on “high spending” Medicare drugs under last year’s failed House version, “Lower Drug Costs Now Act” (HR.3). Consider what would be lost. The Medicare Part D drug program was able to save taxpayers and beneficiaries substantial amounts of money through private market negotiations. A major 2016 Progressive Policy Institute study found that between 2006 and 2014, Medicare beneficiaries access to drugs, health care costs, and net program savings totaled $679.3 billion.
Part D premiums for Medicare patients were initially projected to be $37 when the program began. A very different outcome was achieved as a result of intense market competition. It was $32.20 in 2006, $27.93 in 2008, and $35.02 in 2018. The Medicare trustees report a $33.37 standard monthly drug premium for 2022. A remarkable performance.
Medicare’s policy has been successful because of private market competition and negotiation. Progressives in Congress have fought for 20 years to destroy it and replace it with government price controls.
Progressives can’t control seniors’ drug demand, but they can control the supply, and price controls are very effective. Consumption of controlled commodities is curtailed, spending shifts to uncontrolled sectors, and the availability of controlled commodities is reduced due to price controls. A price control strategy reduces supply to control costs. There would be fewer clinical trials, fewer post-market evaluations, and fewer medical breakthroughs due to price regulation. It is the patients that lose.
The Senate draft amendment would result in net savings of $287.5 billion from 2022 to 2031, according to the Congressional Budget Office (CBO). It concedes that its estimates are uncertain, as is its modest estimate of 15 fewer new drugs in the next 30 years.
According to CBO’s 2021 report on HR 3, last year’s Democratic congressional proposal, if enacted, that bill “would have reduced global revenue for new drugs by 19 percent,” resulting in 30 fewer drugs over 20 years. Non-government economists examining the impact of HR 3 concluded that patients would have a harder time accessing new medications. In light of America’s preeminence as a pharmaceutical research and development center, any such measure would be highly undesirable worldwide.
Drug price controls and a restrictive formulary in the Veterans Administration (VA) prevent patients from accessing many drugs, including new medications, typically covered by Medicare. Consequently, more than 80 percent of VA enrollees had health coverage in addition to their VA coverage in 2019, including Medicare Part D, Medicare Advantage, and Medigap. Medicare drug reforms are still required, despite this bill.
Members of Congress can craft a set of reforms that improve the Medicare prescription drug program and directly benefit Medicare patients without resorting to a policy prescription that has proved to be an epic failure time and time again. Every time price controls were introduced, the result was market distortion and shifting costs, undermining production and supply, discouraging investment, and shortages of goods and services for individuals and families.