Discover more from Letters from an American
August 29, 2023
“For far too long, Americans have paid more for prescription drugs than any major economy. And while the pharmaceutical industry makes record profits, millions of Americans are forced to choose between paying for medications they need to live or paying for food, rent, and other basic necessities. Those days are ending,” President Joe Biden declared today.
The government announced the first ten drugs whose prices it will negotiate with pharmaceutical companies for about 65 million Medicare recipients. Until now, the United States has been virtually alone as the only country in which the government did not negotiate or regulate medicine prices, instead allowing companies to set whatever prices they believe the market will bear. Since their products often are the difference between life and death, it turns out the market will bear quite high prices, but—as Biden observed—those prices often force consumers to sacrifice in other ways to afford them.
A 2021 study by the RAND corporation found that drug prices average 2.56 times higher in the U.S. than in 32 other countries. For name brand drugs, U.S. prices were 3.44 times those in comparable nations.
As Amy Goldstein and Daniel Gilbert explained today in the Washington Post, when Congress created Medicare and Medicaid in 1965 as part of President Lyndon B. Johnson’s Great Society program, it covered drugs administered in a health care setting but excluded those a patient took at home. In 2003, after almost 40 years of medical innovation had significantly changed our management of chronic illnesses, Congress included those drugs under a separate Medicare plan—Part D—or as part of managed-care plans, but to get Republicans behind the bill, Congress explicitly prohibited the government from negotiating the prices of medications.
In 2021 a nearly three-year investigation by the House Committee on Oversight and Reform, then overseen by Democrats as they held the majority in the House of Representatives, concluded that “[d]rug companies have raised prices relentlessly for decades while manipulating the patent system and other laws to delay competition from lower-priced generics. These companies have specifically targeted the U.S. market for higher prices, even while cutting prices in other countries, because weaknesses in our health care system have allowed them to get away with outrageous prices and anticompetitive conduct.”
Republicans sided with the drug company executives who insisted that high prices were necessary to create an incentive for drug companies to innovate, as their investment in research and development depends on the revenue they expect from new drugs. But the committee’s report said their investigation concluded that “sky-high drug prices are not justified by the need to innovate. The largest drug companies spend more on payouts for investors and executives than on research and development. And many blockbuster drugs rely on scientific discoveries from research funded by taxpayers, while drug companies’ R&D spending often focuses on minor changes to extend patent protection and block lower-priced competitors.”
In 2022, Democrats passed the Inflation Reduction Act without a single Republican vote. That law permits the government to negotiate with pharmaceutical companies over drug prices the government will pay.
The ten drugs listed in today’s announcement are among those with the highest total spending in Medicare Part D, and today the Department of Health and Human Services released a report that 9 million seniors paid a total of $3.4 billion for these drugs in 2022. The Congressional Budget Office, the nonpartisan agency that provides budget and economic information to Congress, estimates that government negotiation over these drugs will save taxpayers about $98.5 billion over ten years. If a drug maker refuses to negotiate, it either will face a significant tax or must withdraw from Medicare and Medicaid.
This measure is extraordinarily popular. More than eighty percent of Americans want the government to be able to negotiate drug costs.
The new negotiated prices are scheduled to go into effect in 2026. Pharmaceutical companies are suing to stop the law, claiming it is unconstitutional, although when asked by reporters today about the lawsuits, domestic policy advisor Neera Tanden pointed out that the government “negotiates prices for every other element” Medicare covers of the health care system,, including rates for doctors, other providers, and hospitals. “The only reason why Medicare has not been negotiating drug prices is because Pharma got a sweetheart deal decades ago to basically prohibit negotiations,” she said. “Negotiations are part of [a] market system. It's very normal for that to happen.”
“This plan is a key part of Bidenomics, my economic vision for growing the economy from the middle out and the bottom up—not the top down,” Biden said. “And it’s working.”