Author: Will Humble

For the last 20 years, all Americans have been getting ripped off by pharmaceutical companies.  The heist began way back when a prescription drug benefit was added for Medicare enrollees. Drug company lobbyists got Congress to write the law so that Medicare is prohibited from negotiating drug prices.

As a result, Medicare pays 300% more for prescription drugs than in Europe or Canada, and close to 10x higher than in developing nations. That means every American who gets a paycheck is paying way more than necessary for prescription drugs.

Why are we ALL being scammed (not just Medicare beneficiaries)? Simple: because Medicare is paid for by a payroll tax. Employers & employees each pay a 1.45% tax on wages up to $200,000 (2.9% total) into the Medicare Trust Fund. Individuals (not employers) pay a 0.9% tax on income above $200,000 per year (with no upper limit).

Because Medicare is paid for by a payroll tax, everybody who earns a paycheck is getting ripped off by drug companies- even if they’re not enrolled in Medicare and even if they don’t even take prescription drugs!

The gravy that the drug companies are taking from us is tremendously expensive. Last year, Medicare paid out $129 Billion dollars for prescription drugs. If Medicare were allowed to negotiate prices, taxpayers could save about $60B per year (enough to pay for dental and vision benefits for Medicare recipients).

Because healthcare costs in private health insurance plans is often driven by Medicare reimbursement, people in employer and other private health insurance plans are paying way too much too (resulting in higher monthly premiums).

Previous AzPHA Blog Posts on this Subject:

• Congress Should Seize the Day and Finally Pass Popular Drug Pricing Reform
• Critical Moment for Prescription Drug Price Relief

Fortunately, there’s a simple market-based solution. 

The president’s Build Back Better plan includes a provision that would save the federal government and everyday consumers billions of dollars per year by finally allowing Medicare to negotiate brand name drug prices with manufacturers.

The US House of Representatives 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. That negotiated price would be available to Medicare, Medicaid and private payers.

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.

The plan 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%.

There’s almost enough support in Congress to get this sorely needed reform done. Sadly, Senator Sinema appears to be a holdout on this provision of the Build Back Better plan.

The Big Con

The drug companies are trying to capture Senators on their big con: confuse the public and seniors by substituting a cosmetic plan to lower out-of-pocket costs at the pharmacy counter for Medicare enrollees rather than sticking with real drug pricing reform (allowing Medicare to negotiate).

Under the drug companies plan, prescription drug prices would appear to be lower because Medicare recipients would have lower co-pays. The scam is that that the Medicare Trust Fund would continue to pay 300% more than necessary for drugs. The Medicare Trust Fund would continue to be unnecessarily fleeced, and private health plans would also continue to pass along extra costs to their customers in the form of increased premiums.

It’s frustrating that even though 94% of the public supports this common-sense market-based reform (allowing Medicare to negotiate prices), it appears to have failed.

It’s easy to blame the drug company lobbyists, but the truth is that elected officials who sell out to the drug companies are the ones who have failed us.

November 2, 2021 Update:

Senator Sinema’s office released the following statement today suggesting that she is on board with the plan to allow Medicare to negotiate drug prices:

“After Senator Sinema reached earlier agreement with President Biden to include historic Medicare drug negotiation in the reconciliation package – policies that were omitted from the initial framework at the request of members of the U.S. House – Speaker Pelosi reached out to Senator Sinema this past weekend to continue negotiations.

The Senator welcomes a new agreement on a historic, transformative Medicare drug negotiation plan that will reduce out-of-pocket costs for seniors – ensuring drug prices cannot rise faster than inflation – save taxpayer dollars, and protect innovation to ensure Arizonans and Americans continue to have access to life-saving medications, and new cures and therapeutics. We also thank Representatives Peters and Schrader for their hard work securing this historic agreement.”

Now we need to make sure that the final deal has an effective enforcement mechanism to ensure that Pharma negotiates with Medicare in good faith, that a large or unlimited number of name brand drugs can be negotiated, and that the Medicare negotiated price can apply to private health insurance plans.