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Medicare Uncovered: Negotiating Drug Prices Would Save Billions. Why Isn't It on the Table?

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Message Trudy Lieberman

Published with the permission of the Columbia Journalism Review where this article originally appeared on April 9, 2013

Negotiating the price of drugs would save billions. Why don't we talk about it?

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The leaks from the White House and the circulation of pre-budget talking points make it clear that fixes to Medicare will come from cutting benefits to seniors and disabled people. For the last several months, certain politicians have been building support for options that could involve raising the eligibility age, making more people pay higher premiums, and changing the way Medigap policies work so they would be prohibited from covering as much. Such proposals would require beneficiaries to have more "skin in the game," as the wonks often put it. In other words, it would make them pay more for their care. The goal: Prompt them to use fewer medical services by making them pay more out-of-pocket.

Late last month, in a New York Times piece titled "Medicare Shift May Lead Way to Budget Pact," reporters Jackie Calmes and Robert Pear signaled that "President Obama and Congressional Republicans have quietly raised the idea of broad systemic changes to Medicare that could produce significant savings." Now it looks like those cuts are really on the table and will affect millions of beneficiaries.

What's not on the table? Here's one thing: a requirement that drug makers negotiate prices with the government for the drugs used by Medicare beneficiaries, an option that accounts for drugs costing far less in other countries. Taking such a step would make drug companies contribute to shoring up Medicare.

But with the notable exception of Steven Brill's discussion in Time of why Congress has handcuffed Medicare when it comes to obtaining lower drug prices, there has been little in-depth examination of the topic in the mainstream media. The 2003 law that gave seniors a drug benefit prohibited the government from negotiating cheaper prices for consumers. Aside from a casual mention of this now and then, the press has rarely touched the topic.

Bruce Vladeck, who headed the Medicare agency during the Clinton era, told Kaiser Health News that the single thing Medicare could do to lower its costs and help beneficiaries would be to require Medicare drug plans to buy drugs at the Federal Supply Schedule Price--used by the Veterans Administration, the Department of Defense, and safety net hospitals. Beneficiaries would get lower prices too.

Brill estimated that that if drug makers were paid what other countries pay them, Medicare could save some $250 billion over 10 years and, depending on whether that amount is compared with GOP and Democratic deficit reduction proposals, "that's a third or a half of the Medicare cuts now being talked about." Liberal economist Dean Baker, co-director of the Center for Economic and Policy Research, crunched numbers from the Organization for Economic Cooperation and Development and came up with similar savings. He found that if seniors paid the same prices as people in Canada, the federal government would save nearly $230 billion over the next decade. States would save about $31 billion and Medicare beneficiaries $48 billion. If the federal government paid the same prices as are paid in Denmark, its savings would be more than $500 billion.

But such numbers are apparently not persuasive when they're up against the lobbying might of the drug manufacturers. According to Open, drug makers spent $152 million on lobbying in 2012, an amount that has steadily increased since 2002-2003, the time when Congress was debating Medicare's prescription drug benefit, which handed drug makers the gift of no negotiations over the prices they charge.

Although heavy-duty price negotiation is not on the table, a weaker measure that brings some price relief to the program and beneficiaries is. Politico reported the president's budget contains a provision that would allow the government to obtain rebates from pharmaceutical makers for drugs covered under Medicare for beneficiaries enrolled in its low-income subsidy program. Mandating these discounts in the form of rebates begins to use Medicare's purchasing leverage and would ensure lower drug prices for this group than insurers currently charge the government to provide the medicines. The savings--$137 billion over 10 years, according to the Congressional Budget Office--are not as great as negotiating prices for all Medicare beneficiaries. Still it's a savings for a government that professes to be strapped for money, and Obama has proposed this before.

What's more, there's precedent for it. The government already obtains similar discounts for drugs sold under Medicaid. Before 2006, beneficiaries who were eligible for both Medicare and Medicaid got their drug benefits from Medicaid, where the rebate discounts were in effect. After 2006, the law called for Medicare, not Medicaid, to be in charge of the drugs for low-income seniors--meaning that the government would now have to pay higher prices for their medicines than Medicaid would pay.

Advocates of the new effort to allow the rebates--led by the grassroots activist group Alliance for a Just Society and HCAN , which was instrumental in passing Obamacare--hope this approach will be a foot in the door, and lead to eventual price negotiations with the drug companies. How the proposal fares in Congress depends on whether the president himself is really serious about it and on the success of the grassroots campaign the groups are waging to build support for the measure.

For their part, drug companies are working hard to make sure that even the weaker measure dies quickly. (See accompanying post, Big Pharma's army of messengers.) As ammo, they are raising the same argument they have for years: The high prices of pharmaceuticals are justified because drug companies need the money for expensive R & D (a claim disputed in a recent analysis in the British Medical Journal,
which reported "more than four fifths of all funds for basic research to discover new drugs and vaccines come from public sources."

A German journalist I met recently asked me about the claim that drug companies need all this extra money to create new drugs. He wanted to know if anyone has ever really investigated that? Perhaps an op ed in the Los Angles Times last week by Dr. Arthur Kellerman, a senior policy researcher at the Rand Corp. (and a fine source for journalists) will help spark some much-needed reporting. Kellerman wrote:

If budget hawks are serious about lowering entitlement spending, they'll remove Medicare's straightjacket. Permitting the purchase of lower-cost drugs or care would be far more humane to seniors than cutting their benefits.

It's an idea worth discussing, but won't be unless journalists raise it.

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Trudy Lieberman, a journalist for more than 40 years, is a contributing editor to the Columbia Journalism Review where she blogs about health care and retirement at Her blogposts are at She is also a fellow at the Center for Advancing Health where she blogs about health at (more...)
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