Policy Documents

Medicare Drugs: Why Congress Should Reject Government Price Fixing

Robert E. Moffit –
March 18, 2013

In this Issue Brief for Heritage, Moffit writes that, 

Senator Patty Murray (D–WA), chair of the Senate Budget Committee, is offering a budget resolution claiming $275 billion in health care savings, though she provides few details. But Senator Amy Klobuchar (D–MN) has introduced legislation (S. 117) that would replace today’s private-sector negotiation of Medicare drug prices with government “negotiation.” This approach has the backing of a broad coalition of “progressive” groups. If Washington would adopt the same government pricing schemes that prevail in, say, Britain, Canada, or the Veterans Administration (VA), they claim the budgetary savings would be enormous.

The phrase “government negotiation” suggests something like the bargaining process that characterizes routine business transactions throughout the private sector. It is nothing of the sort. The government does not negotiate prices; it fixes them. As a routine matter, if a provider either cannot or does not accept the government’s fixed price, that provider is excluded from the program.