It’s no secret that prescription drug prices in the U.S. are far higher than in other countries and that the current system costs taxpayers, insurance plans and people far more than it should. A huge barrier has been language in the Medicare law that prevents HHS from directly negotiating drug prices under the Medicare Part D drug benefit program. 

Achieving prescription drug pricing reform (allowing Medicare to negotiate drug prices) has been out of reach for decades because the drug company lobby is so powerful that meaningful reform has been impossible.

That may be changing. A few weeks ago President Biden held a press conference where he advocated large changes to what prices drug companies can charge. His plan is included in the next infrastructure bill that’s being discussed in congress.

He proposes to FINALLY allow Medicare (the biggest buyer of drugs by far) to negotiate drug prices with the drug manufacturers. Unbelievably, Medicare has never been able to negotiate drug prices. How would you like it if you could never comparison shop for anything you buy. You’d just have to pay whatever the one store that sells it says. Period.

Well, it’s already that way for us as a country- Medicare has to just basically pay whatever the company says (and we. the people, pick up the tab).

The US House of Representatives has already passed a measure called “H.R. 3, the Lower Drug Costs Now Act of 2019” which would require HHS to negotiate the price of between 25-125 brand-name drugs without generic competitors. That negotiated price would be available Medicare, Medicaid and private payers. Importantly, HR 3 also provides some negotiating leverage to HHS.

For one thing, it would establish an upper limit for the negotiated price equal to 120% of the Average International Market price paid by Australia, Canada, France, Germany, Japan, and the UK.

It would impose financial penalties on drug companies that don’t comply with the negotiating process. Manufacturers that fail to negotiate would face an escalating excise tax on the previous year’s gross sales of the drug in question, starting at 65% and increasing by 10% every quarter to a maximum of 95%.

President Biden’s plan goes further than H.R. 3 by allowing Medicare to negotiate drug prices across the board, not just on 25–125 drugs.

He proposed allowing Medicare to negotiate a fair drug price for all drugs – including the costs of the research and development and a reasonable profit. Drug companies could then only set prices based on the rate of inflation after it’s determined how much they’ve invested and what a reasonable profit constitutes.

Once Medicare negotiates a lower drug price, employer-based plans would get access to the same drug for the same price as Medicare.

This is a common sense intervention that would help both Medicare beneficiaries and the Medicare Trust Fund. Let’s hope that there’s finally enough support in congress to pass this long needed reform.

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