At Long Last: A Promising First Step Toward Reducing Drug Prices

October 26, 2018

This morning, Health and Human Services Secretary Alex Azar gave a speech at the Brookings Institution about the administration's plan to reduce drug prices for drug covered by Part B of Medicare. While this is long overdue, does not affect Medicare Part D, pharmacy benefit managers (PBMs), or many other areas, it is a promising first step toward reducing drug prices and helping consumers.

 

In his remarks, Secretary Azar told the crowd that this was a long overdue reform for Medicare pays for its most expensive drugs. The only obstacle to this reform are the special interests standing in the way-specifically, pharmaceutical companies. Currently the Medicare Part B payment system has no negotiations, and this new payment system will be based on the recently released report. He added that Medicare pays 180% of what other developed countries pay for these drugs, and for some drugs Medicare pays 300% or more. The goal is for Medicare Part B to pay 126% of the drug prices that the other countries pay.

 

How will this be accomplished? Azar announced that the plan will be phased in over the next five years and that will cover 50% of the country, and it will also lower drug prices everywhere. He stressed the importance of public access, and promised that people will not lose benefits and formularies will not be harmed. Another goal is move doctors and hospitals away from purchasing drugs, and eliminate the incentive for them to prescribe the most expensive drugs available. Finally, he mentioned biosimilars and claimed that the proposal will help promote them.

 

The savings could be significant-$17 billion in Medicare over the next five years. Azar was confident that these reforms would not hurt drug research and development, and dismissed those claims as scare tactics by Big Pharma. He noted that according to pharmaceutical companies themselves, they spend enormous amounts of money on research, and the U.S. market is where they make enormous profits. Drug companies, despite their threats, are not going to leave this market, especially since they will still be getting somewhat higher prices than in our developed countries.

 

The speech was followed by questions from the audience.  In response to a couple of these questions, Azar argued that pegging the prices of the drugs to the prices in other countries was the best method because it relied on the drug companies themselves. They negotiated those prices with other governments, and the administration would follow their example instead of having government bureaucrats impose price controls. He concluded by saying that "change is coming...you can be part of the solution or put your hand in the sand."

 

It is important to remember that this is not a comprehensive solution. It does not include regulating PBMs and ending their abuses, which is essential if you want to lower drug prices. It does not include allowing Medicare Part D to negotiate lower drugs, which is also important, or requiring brand drug companies to share their samples with generic drug companies so they can make cheaper versions. However, it is an excellent first step that will help consumers struggling to pay for expensive drugs. And with any luck, it will open the way for further reforms in the next Congress.

 

 

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