Medicare Drug Price Negotiation Stalled

"Democrats failed Wednesday to get the 60 U.S. Senate votes they needed to proceed with a bill to give Medicare the power to negotiate lower drug prices for millions of older Americans" - HealthDay.com

Yesterday's post described how pharmaceutical giant Amgen, Inc. and for-profit dialysis chains were raking in millions of dollars as a result of the flawed reimbursement payment system, administered by Medicare, with respect to the drugs Aransep, Epogen and Procrit. One could therefore assume it would be an easy matter to reduce or discontinue the unhealthy profits. But it does appear it will be a difficult, long battle to withdraw the candy. Why? Current law forbids Medicare from negotiating drug prices with pharmaceutical companies!

The 2003 Medicare Modernization Act overhauled medicare and medicaid so as to provide seniors and individuals with disabilities with a prescription drug benefit, more choices, and better benefits under Medicare. This legislation specifically prohibits the Secretary of Health and Human Services, HHS, from participating in price negotiations for the Medicare prescription drug benefit.

On January 12, 2007, the House approved the Medicare Prescription Drug Price Negotiation Act of 2007 (H.R.4), with the specific intention of reversing the non-negotiation clause in the 2003 legislation. H.R.4 mandated that the HHS Secretary negotiate lower drug prices – including discounts, rebates and other price concessions – for sponsors of Part D prescription drug or Medicare Advantage plans. Over the years, Part D was credited with lowering drug prices, but Democrats felt costs could be further reduced by permitting Medicare to negotiate directly with drugmakers.

Under Medicare Part D, which covers the cost of most prescription drugs for elderly patients, insurers negotiate directly with the pharmaceutical industry and receive a federal subsidy for administering a drug plan. Oddly enough, although H.R.4 required the HHS Secretary to act, the second paragraph in the legislation states: “Nothing in paragraph (1) shall be construed to authorize the Secretary to establish or require a particular formulary.” In layman's terms, this means the Secretary would have no authority to set up a preferred list of drugs for which Medicare will pay. Without such a list, or the threat of keeping some drugs off the formulary, drug companies would have no particular incentive to cut their prices.

On April 13th, the Senate Finance Committee approved an amendment [S.3] to H.R.4, which amendment withdrew the language in the 2003 Medicare Modernization Act that prohibits the HHS Secretary from participating in drug price negotiations and, in addition, "allowed" doctors and patients to compare the effectiveness of drugs and other medical treatments.

On April 18th, S.3 was reviewed in the Senate and Republicans blocked the mostly Democrat proposal to permit Medicare to negotiate drug prices directly with pharmaceutical companies, despite reports [see House Speaker Nancy Pelosi's statement here] that for the top 15 drugs prescribed for seniors, the median Medicare Part D price has skyrocketed in the last year, growing by 9.2 percent, almost four times the inflation rate of 2.4 percent.

Republicans claimed S.3 would "impede competition and reduce convenience for beneficiaries." HHS Secretary Mike Leavitt also stated that permitting a government authority to negotiate drug prices could lead to price controls in a future presidential administration. My sense is that the non-negotiation clause favors lining the pockets of the powerful insurance and pharmaceutical companies and that the latter's lobbyists were likely responsible for this outcome. Second, it is unclear why S.3 was so vehemently opposed as it had no teeth - it merely sought to "allow" as opposed to "require" the HHS secretary to negotiate the drug prices. In all likelihood therefore, the war on high drug prices will continue.