Morning Joe Is Wrong: Medicare Does Negotiate Drug Prices | Citizens Against Government Waste

Morning Joe Is Wrong: Medicare Does Negotiate Drug Prices

The WasteWatcher

Today on the Morning Joe Show, a false narrative was perpetuated: Medicare does not negotiate drug prices.

The show’s eponymous host, Joe Scarborough, called for free-marketers to call Congress and demand that the government negotiate Medicare drug prices.

Joe needs to supervise his producers’ research better.  The free market is very much involved in negotiating Medicare drug prices.  Private sector Part D plan sponsors utilize pharmacy benefit managers (PBMs) to negotiate drug prices in Medicare Part D every single day.  PBMs use a variety of tools, such as getting price concessions from both brand-name and generic drug manufacturers, creating networks of more affordable pharmacies, and encouraging patients to take their prescriptions in order to lower healthcare costs.

Although the government actively regulates PBMs participating in Medicare Part D, the law does not allow the Secretary of Health and Human Services to interfere in their price negotiations.

What Joe Scarborough is really advocating for is price controls in Medicare Part D.

The Veterans Administration (VA) does exactly this by utilizing statutorily-mandated prices and discounts for their drugs.  Seniors should be aware of an October 2013 Lewin Group study, which compared the VA national formulary with the two highest enrollment plans in Medicare Part D and the Federal Employee Health Benefit Program (FEHBP) drug plans.  The study found the Medicare Part D and FEHBP drug plans provided “greater breadth of drug coverage than the VA formulary.”  The study looked at 274 of the most prescribed drugs in the U.S. and found that only 78 percent of them are on the VA formulary.  However, the two most popular Medicare Part D plans covered 97 and 95 percent of the drugs, respectively.  The FEHBP, which also utilizes private-sector health insurers and PBMs, covered 91 percent of the 274 drugs.

Price controls do not work.  Joe Scarborough may be too young to remember the wage and price controls that were implemented in the 1970s by President Nixon under the Economic Stabilization Act of 1970 but, as a member of Congress from 1995 to 2001, he should certainly know the outcome of that failed policy.  The main purpose of Nixon’s executive order was to stabilize the economy and reduce inflation; his actions did the exact opposite.  According to the book Forty Centuries of Price Controls by Robert Schuettinger and Eamonn Butler, between August, 1971 and April 30, 1974, the entire length of the Nixon price controls, the Wholesale Price Index (WPI) and Consumer Price Index (CPI) increased at annual rates of 12.0 and 7.2 percent, respectively.  In the 12 months before the price controls were implemented, the WPI and CPI had annual rate increases of 3.3 and 4.3 percent, respectively.

Foreign countries use price controls and former Democratic National Committee Chairman Howard Dean, MD, and a 2014 Democratic presidential candidate, agrees that price controls are harmful.  In a September 18, 2015 New York Times Letter to the Editor, he wrote, “The American drug industry is by far the most successful and innovative in the world in addition to being the most expensive because we are the only country that pays the true research and development costs, not only for Americans, but for the rest of the world as well.”  He also said, “Contrary to popular opinion, pharmacy benefit managers, H.M.O.’s and even Part D insurers already negotiate with drug companies far more effectively than the government, and they should continue to do so.”

Instead of focusing on ways to get the government more involved in drug pricing, perhaps Joe Scarborough should focus on ways to get faster drug approvals, especially for generic drugs, so there is more competition.  Currently, there is a backlog of 3,100 generic drug applications at the Food and Drug Administration (FDA).  As for brand name drugs, it takes 10 to 12 years to get a drug through clinical trials and the FDA approval process, costing research pharmaceutical companies on average $2.6 billion.

  

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