The federal government operates three gigantic systems providing health care to millions of Americans. The Department of Veterans Affairs takes care of veterans, Medicaid (whose costs are shared with states and localities) is coverage for the poor and Medicare is health insurance for seniors and people with disabilities.
The VA and Medicaid can, and do, negotiate with suppliers on drug prices, just like they negotiate payment levels for other health services. Yet Medicare, which sets the reimbursement rates for doctors and hospitals, is barred by federal law from negotiating on drugs. That’s the doing of the well-heeled pharmaceutical lobby.
The prohibition from allowing Medicare to negotiate on drug prices was part of the original legislation when Medicare’s Part D drug benefit was first approved by a Republican Congress and President George W. Bush in 2003. Sen. John McCain, always a truth-teller, said the ban on negotiations was “outrageous,” as Democrats pledged to change it.
It took a long time, but the change finally came last year with President Biden’s wide-ranging Inflation Reduction Act. The law, signed a year ago this month, permitted Uncle Sam (meaning Health and Human Services Secretary Xavier Becerra) to haggle over the prices of medications, albeit only a small group of drugs at a time.
Biden has now announced the first 10 drugs. The negotiations, by the Centers for Medicare & Medicaid Services, will take years and the lower prices for consumers will begin in 2026. There will be another 50 drugs over the next four years up for negotiations and after that, 20 a year. And Big Pharma is fighting all the way, already in court to stop it.
The billions saved by both the government and the patients are billions coming from their bank accounts. Higher prices mean higher profits. As for lower prices, that is something that they are not interested in. The first group of drugs are made by Bristol Myers Squibb, Pfizer, Boehringer Ingelheim, Eli Lilly, Johnson & Johnson, Merck, AstraZeneca, Novartis, Amgen, AbbVie and Novo Nordisk.
Those pharmaceuticals do good work and deserve to be fairly compensated. We are committed capitalists and think that private companies are entitled to gain from their medical discoveries (even though a great deal of the research money is government funds). But should medicine for diabetes or heart disease cost a fortune?
One of the drugs on the list, Imbruvica, for blood cancer, runs $17,000 a month, or $204,000 a year. Is it that expensive to manufacture? Or were its development expenses extraordinarily pricey? Or are there not that many patients using it, so the costs per person have to be so high? Whatever the reason, it can be addressed during the talks now permitted between Medicare and the supplier, a joint product of AbbVie and Johnson & Johnson.
Big Pharma argues that since Medicare is such a big customer of their goods, it won’t be a real negotiation but a dictate, laid down by Medicare without much back and forth. And since Medicare is the federal government, it would be akin to the government setting prices.
With their ample resources to wage this courtroom battle, the legal fight will eventually land in the U.S. Supreme Court. Hopefully, the program will be upheld and drug costs will be lowered.
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