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Politics Likely Would Limit Medicare's Drug-Bargaining Clout

By Kerry Young, CQ Roll Call

February 2, 2016 -- Medicare officials would fare poorly at negotiating drug prices because they would lack a key tool used by insurers in bargaining with pharmaceutical companies, which is the ability to limit which medicines are covered, a health policy researcher said at a conference Tuesday. 

Many Americans would rebel against letting the agency create its own list of approved drugs and thus exclude some products from its payments, Dana Goldman of the University of Southern California said at AcademyHealth's national policy conference. Known as formularies, these lists of drugs approved for coverage help private insurers as they seek lower prices from drugs manufacturers. It's unlikely that Medicare officials would get permission from Congress to create one nationwide Part D formulary if the agency were tasked with negotiating drug prices, Goldman said.

"I don't think they would do better than what an Anthem would do or some of these large insurers" could extract in savings due to federal officials' lack of authority to exclude products from routine payments, said Goldman, director of the USC Schaeffer Center for Health Policy and Economics.  "You are going to have patients on Capitol Hill who are going to be saying `We want innovation for our disease,' and (CMS officials) won't be able to restrict the formulary."

As the nation's top single purchaser of health care, Medicare would hold outsized influence if it negotiated directly with insurers on drug prices. That makes the concept of direct Medicare negotiations on drug prices attractive to some politicians in light of rising pharmaceutical costs. A call to give this power to Medicare serves as a rare point of agreement between GOP presidential candidate Donald Trump and the two Democratic contenders, Hillary Clinton and Sen. Bernard Sanders, D-Vt.

A Kaiser Family Foundation poll last year found that about a quarter of Americans may be having a difficult time paying for their prescription drugs.

Congress, though, left the responsibility for negotiating the cost of most drugs taken routinely by people on Medicare with insurers. At least three Democratic bills are pending in Congress to shift the bargaining duties back to the Centers for Medicare and Medicaid Services, with two of these specifically barring the creation of a formulary for the $101 billion drug program. 

That approach "would take all of the teeth out of" Medicare negotiations on drug prices, Goldman said in an interview Tuesday.

He also doubted that Medicare could mimic the success of the Department of Veterans Affairs, which has been able to hold down its drug costs through use of a formulary.

"The VA has a population where they are used to being told what to do by the military," he said. "Elderly Americans are not going to accept the VA formulary."

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