Congressional Democrats are lining up behind legislation that would set prescription drug prices for Medicare beneficiaries.
Sen. Bernie Sanders (I-VT) proposed the Senate version of the Medicare Drug Price Negotiation Act, joined by cosponsors Sens. Kirsten Gillibrand (D-NY), Kamala Harris (D-CA), Patrick Leahy (D-VT), Jack Reed (D-RI), and Elizabeth Warren (D-MA).
Rep. Elijah Cummings (D-MD) introduced the House version of the Medicare Drug Price Negotiation Act, H.R. 4138. The House bill has 18 cosponsors.
The bill would direct the Secretary of the U.S. Department of Health and Human Services to negotiate Medicare Part D drug prices directly with pharmaceutical companies.
Medicare Part D already involves price negotiations, says Devon Herrick, a policy analyst for The Heartland Institute, which publishes Budget & Tax News.
“People mistakenly believe drug prices are not negotiated for Medicare,” Herrick said. “That is incorrect. Drug prices are negotiated by private Medicare Part D plans. Private plans pit one drug maker against the other, forcing them to bid the lowest possible price. The government could not get better prices, because it lacks the power to say ‘no’ and decline to purchase a drug, the way private drug plans can.”
Grace-Marie Turner, president of the Galen Institute, a think tank focusing on health care reform, says Medicare Part D is uniquely successful.
“It is the only program in government where companies absolutely compete for price, and seniors themselves have the ability to choose the plan that works best for them,” Turner said. “It’s not government making decisions; it’s seniors.”
Relabeling Price Controls
Direct price negotiation is just another name for government price controls, Turner says.
“People know that price controls don’t work and haven’t worked for 4,000 years,” Turner said. “So what they do is say, ‘Why should the government not be able to negotiate prices in Part D?’
“The government does not ‘negotiate’; it sets prices,” Turner said. “Part D is such a big buyer that whenever the government says, ‘This is what we’ll pay,’ the companies basically have a choice of saying, ‘We’ll sell our drugs at that price’ or, ‘We won’t sell them.'”
Government price controls discourage research and development, Turner says.
“We know from every other country what happens: they wind up setting the prices so low that it dries up research budgets and drives out the ability of companies to continue to innovate,” Turner said.
Prescribes Free-Market Principles
Herrick says the real problem is prescription drug prices are currently divorced from market forces.
“A free-market approach can bring down the cost of drugs, the way it does in other markets,” Herrick said. “The problem is that 86 percent of drugs are paid for by third-party insurers. If consumers paid for their drugs out of pocket, there would be far fewer drugs with monthly price tags that approach a mortgage payment.”