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Medicare Drug Price Negotiations Would Trigger Thorny Issues

By Kerry Young, CQ Roll Call

February 1, 2016 -- Presidential contenders from Donald Trump to Bernard Sanders support moves to allow Medicare to directly negotiate prices with drugmakers. But changing the law would require lawmakers to delve into difficult questions that could dramatically affect the amount of savings that would be generated and the scope of the government's leverage.

The growing costs of Medicare's Part D prescription drug program are expected to keep the program in the spotlight in this election year. Part D premiums are likely to increase by 13 percent from 2015 to 2016, after having been relatively flat in recent years, wrote Chuck Shih, senior officer for the specialty drugs research initiative at the Pew Charitable Trusts, and colleagues in a Monday blog post in Health Affairs.

"Given these rising costs, a growing number of policymakers believe the government, through the Secretary of Health and Human Services (HHS), should be allowed to negotiate drug prices in Medicare Part D," Shih and colleagues wrote. "Eighty-three percent of the public supports allowing the government to negotiate with drug companies for a better deal on Medicare drug prices."

Beyond a widely popular call to have Medicare negotiate drug prices, though, are likely difficult decisions about how the agency would do so.

The Part D benefit was designed by Congress to pay insurance companies to act as middlemen, having these firms apply their established practices for negotiating with pharmaceuticals companies to the massive federal benefit. The cost of the Part D program almost doubled in its first decade, rising to an estimate $92.7 billion expense last year from $47.4 billion in its initial year of operation in 2006, according to the most recent Medicare trustees report. The annual cost of the program could reach $197 billion by 2024, the trustees have estimated.

Estimates for savings from a switch to direct negotiations range from $16 billion per year if prices mirrored those paid by Medicaid and the Veterans Health Administration to $541 billion over a decade if prices were negotiated down to the levels paid for prescription drugs by consumers in Denmark, Shih and colleagues wrote in Health Affairs. How such savings are reached would depend on steps such as deciding whether to limit the list of approved drugs, or formulary, they noted.

"Any proposal advocating for an HHS role in Medicare Part D price negotiations must include details on the scope of the government's authority as well as the mechanism for negotiating drug prices," the researcher wrote. "Important considerations, such as what is being negotiated (e.g., prices and/or formulary placement) and what to do if the negotiating parties are unable to come to agreement, need to be specified."

Democrats in Congress already have shown split views in how they would handle a shift in Medicare' s approach to drug purchasing through Part D.

One of the boldest proposals seen in the current session of Congress has come from Sen. Richard J. Durbin, D-Ill. His bill (S 1884) would create a formulary to drive down Medicare Part D prices. He has attracted only five Democratic cosponsors and Angus King of Maine, an independent, as backers. More popular is a bill (S 31) from Sen. Amy Klobuchar, D-Minn., which calls for Medicare to negotiate drug prices but doesn't allow for the creation of a formulary. Sanders is among the eight cosponsors of this measure, and also has introduced a separate bill (S 2023) that calls for Medicare to negotiate drug prices but doesn't authorize the establishment of a formulary. It has one Democratic cosponsor.

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