Paul Precht is the Medicare Rights Center 's policy coordinator and director of its DC office. Before joining MRC, he served as editor of Inside CMS, an independent policy newsletter covering Medicare and Medicaid policy.
As the debate heated up in Washington this week in advance of today’s vote to require the federal government to negotiate lower drug prices for people with Medicare, a new report presented some startling, if little noticed, findings about Medicaid, the health program for the poor.
In 2005, according to the Centers for Medicare and Medicaid Service, state governments were able to sharply cut the rate of growth in Medicaid drug spending by banding together to negotiate steeper discounts from pharmaceutical companies and shifting consumers to lower-priced medicines. Reversing a 10-year trend that had seen double digit growth in drug spending, Medicaid held growth to less than half the average increase in brand name drug prices, which rose by 6 percent.
Imagine that. Government can negotiate lower drug prices.
In 2006, however, over six million poor people receiving both Medicare and Medicaid were shifted from Medicaid drug coverage to coverage by private insurance companies under Medicare Part D. The result was windfall profits for drug manufacturers. The private plans have nowhere near the leverage to negotiate lower prices that state governments have.
The bill now before Congress would put that negotiating power for people with Medicare back in the hands of the federal government. Critics say the bill sharply limits the government’s negotiating power by continuing to ban Medicare from establishing a formulary, or list of covered drugs. That prevents Medicare from forcing price concessions from manufacturers who want their drugs covered.
That’s true. But an administration willing to stand up to the pharmaceutical lobby and a team of good lawyers could do a lot with this bill to force lower drug prices. Take just one example:
Norvir is a protease inhibitor that is an essential component of many drug regimens for the treatment of AIDS/HIV. There is no question that Medicare would exclude this drug from its list of covered drugs. In fact, despite the existing ban on establishing a formulary, Medicare now mandates that all Part D plans cover this drug.
Norvir costs at least $6,326 for a year’s treatment under Part D, five times the amount paid by Medicaid programs. While Medicaid limits yearly price increases to the rate of inflation, the companies running Part D pass on the hikes to taxpayers and people with Medicare.
Norvir costs so much because its manufacturer, Abbott Laboratories, wants to make drug regimens that combine Norvir and competitors drugs prohibitively expensive and drive up sales of its own “cocktail” drug, according to internal documents published last week in the Wall Street Journal.
Insurance companies have no power against such an anti-competitive scheme. If Abbott refuses to sell the drug at a reasonable price, though, the federal government has the legal right to override the patent on Norvir, which was developed with the help of government grants. The prospect of such action gives the government plenty of negotiating leverage.
Ultimately, Congress does need to provide a simple, reliable Medicare drug benefit that covers the medicines people need at prices they can afford. That prospect has the pharmaceutical industry terrified. They know that many of their best-selling drugs are simply overpriced, highly marketed versions of medicines made by their competitors, including generic manufacturers. A formulary was based on clinical criteria would force manufacturers to give drastic price concessions or leave them out of the game entirely.
But with the Medicare population now divided up among some 200 private companies, it is no easy task to make a Medicare drug benefit a viable option. And a Congress that has been in the corner of the pharmaceutical industry for the last decade needs to spar a little before it takes on a title bout. Passing legislation that mandates negotiations for lower drug prices is tough fight, it’s important that we win it.
