It seem reasonable to:
Allow Social Security Health and Human Services (HHS) Medicare D to negotiate prescription drug prices.
Provide training so that Medicare can negotiate effectively. (Negotiation is not the government telling the other parties what to do.)
Provide a system to resolve situations that cannot be effectively negotiated, possibly arbitration.
An excellent place to start this discussion is to outline the statements on which most folks can agree:
Presently, Medicare cannot negotiate prescription drug prices. Under the 2003 legislation that created Medicare Part D to provide beneficiaries with prescription drug coverage, the government is prohibited from negotiating prices with drug makers.
Prescription drug prices are higher in the United States (U.S.) than other high-income countries.
Most (90%) desire greater access to generic drugs.
Most (88% per Kaiser Family Foundation) want Medicare to negotiate prices.
When Congress passed the Medicare Part 4 Prescription Drugs provision, they included a noninterference clause. “The noninterference clause prohibits the Secretary of Health and Human Services from interfering in the private negotiations – which already occur in Medicare Part D – between pharmaceutical manufacturers and Part D insurance plans or pharmacy benefit managers (PBMs).”
In 2019, the Democratic House passed a resolution that would allow Medicare to negotiate prices. The Republican Senate did not consider the bill.
Canada: Unlike other countries with universal health care, Canada does not cover prescription drugs, but they are creating a Canada Drug Agency.
Branded medicines cost, on average, 20 percent more in Canada than in other advanced economies, and around 20 percent of Canadians are uninsured or underinsured, Ottawa says.
The new Canada Drug Agency would “take a coordinated approach to assessing effectiveness and negotiating prescription drug prices,” which could help lower the cost of medications by up to C$3 billion a year in the long term, the budget said.
The agency - which is not scheduled to start work until the 2022-23 fiscal year - would assess the effectiveness of new drugs, negotiate prices and recommend which medications represented the best value for money.
“We believe it leaves scope there for them to be negotiating on behalf of all Canadians, which includes private and public payers,” Chief Executive Officer Stephen Frank, The Canadian Life and Health Insurance Association.
Germany: Germany’s Health Insurance System shares many of the US health care characteristics and may be instructive since their drug prices are lower.
Prices for new drugs are established in Germany through collective negotiations between a single buyer (the umbrella organization representing the insurers, also known as the Sickness Funds) and a single seller, the drug maker… A unique feature of the German system is that the final negotiated and arbitrated prices are not confidential… The outcome seems positive from the perspective of German purchasers. Drug prices in Germany tend to be at the high end of the range for European nations but substantially below U.S. levels… This process is widely accepted both politically and socially ... There seems to be consensus that drug prices must be high enough to finance innovation but low enough to sustain affordability, and that prices for innovative drugs should be higher than those for less innovative products.
United Kingdom: The UK uses confidential negotiations for drug pricing.
…the powerful position the NHS (National Health System) sits in as the provider of almost 100% of healthcare in the UK, means such deals can be struck. Such confidential deals are not the only way prices are controlled in the UK, however the powerful negotiating position of the NHS is a major factor that enables NHS patients, in the main, to receive the drugs they need for treatment and for the the cost of drugs to not spiral out of control…
It is however clear that drug prices in the UK are much lower than in several other developed markets and substantially lower than in the US.
Price negotiations are kept confidential and companies request that prices remain secret as part of the discount agreement with a government. There is a voluntary agreement, renegotiated every five years, between the Association of British Pharmaceutical Industries (ABPI) and the Department of Health which covers the vast majority of branded products (80% of the drugs), i.e., those still covered by patents.
Pending U.S. Congressional Bills: Medicare Drug Price Negotiation Act.
Bills to allow negotiation have been introduced during the past several sessions. Now there is Senate bill 908:
To amend title XVIII of the Social Security Act to provide for the negotiation of lower covered part D drug prices on behalf of Medicare beneficiaries and the establishment and application of a formulary by the Secretary of Health and Human Services under Medicare part D, and for other purposes.
This Act may be cited as the “Medicare Drug Price Negotiation Act”.
“(A) IN GENERAL.—Notwithstanding any other provision of law, subject to subparagraph (B), the Secretary shall, for plan years beginning with plan year 2023—
“(i) negotiate with pharmaceutical manufacturers the prices (including discounts, rebates, and all other price concessions) that may be charged to PDP sponsors and MA organizations for covered part D drugs furnished to enrollees; and
“(ii) complete such negotiations for a plan year not less than 30 days before the first day of the application review process for such plan year for new contracts or expanding existing contracts with PDP sponsors and MA organizations to offer prescription drug plans or MA–PD plans, respectively.
“(B) USE OF FALLBACK IF NEGOTIATIONS FAIL.—
“(i) IN GENERAL.—If, after negotiations under subparagraph (A), the Secretary is not successful in obtaining a reasonable price for covered part D drugs in accordance with clause (iii), the price that may be charged to PDP sponsors and MA organizations for such covered part D drugs furnished to enrollees shall be the lowest of the following:
“(I) The price applied pursuant to section 8126 of title 38, United States Code, for such drug for the year.
“(II) The median price available, during the most recent 12-month period for which data is available from the manufacturer to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity in Canada, the United Kingdom, Germany, France, and Japan.
“(III) The average manufacturer price….
This bill also allows for “renegotiation,” annual reports to Congress, and drug rebates for low-income individuals including Medicaid.
US House of Representatives HR 3: Elijah Cummings Lower Drug Costs Now Act
…the House of Representatives is expected to pass H.R. 3, the Elijah Cummings Lower Drug Costs Now Act…
Essentially, H.R. 3 contains three main elements. First, it recognizes that out-of-pocket costs for many patients are too high, and to that end it fundamentally restructures the Medicare Part D benefit to provide financial relief for a large number of Part D beneficiaries. At present, Part D places no cap on patients’ cost sharing, and more than one million Medicare beneficiaries have out-of-pocket costs in the many thousands of dollars each year. H.R. 3 caps beneficiaries’ out-of-pocket costs at just $2,000 (Section 301).
Second, H.R. 3 recognizes that our existing drug pricing systems create incentives for drug companies to raise their list prices over time, often much more rapidly than inflation. ..
Third, H.R. 3 aims to tackle the underlying problem of high drug prices by providing the Secretary of Health & Human Services (HHS) with authority to negotiate some prescription drug prices both for Medicare and for the private market (Section 101)….
What About Arbitration as the Backstop?
Could an arbitration system be created that is:
Efficient and effective; and
That would not allow drug companies to simply refuse to sell their drugs.
Germany does have an arbitration system. According to the Commonwealth Fund, if negotiation fails:
the drug’s price is established by an arbitration panel with representatives from each side plus an appointed chair. The manufacturer can refuse the arbitrators’ price and withdraw its product, but then forgoes all sales in the continent’s largest market and knows it will enter price negotiations for its next drug with a reputation for being uncooperative.
From 2011, when this price structure was established, to mid-March 2019, the German pharmaceutical system has conducted assessments and pricing for 230 drugs. Of these, 35 drugs had a price set by arbitration and 28 were withdrawn from the market by their manufacturers.
Manufacturers can withdraw their product from the German market if the resulting price is so low as to undermine prices that can be charged elsewhere.
What About Generic Drugs?
According to the Commonwealth Fund, in Germany:
Generic drugs and biosimilars are assumed, by definition, not to offer incremental benefits over comparator products. In most cases, they are assigned to therapeutic classes subject to reference pricing, along with new drugs found not to offer incremental benefit.
So, Pharma and many Republicans do not favor allowing HHS to negotiate for Medicare Part D prescribed drugs. On the surface they worry about prescription drugs access and coverage. They also worry about decreased funding for research and development.
With careful crafting of the legislation, other countries have demonstrated that all of the above issues can be managed.
Success for a drug-purchasing system would include three features: a transparent and evidence-based approach to evaluating the clinical value of each new treatment; an affordable set of prices linked to clinical value; and a recognition by both buyers and sellers that the process is fair, financially sustainable, and supportive of continued investments in pharmaceutical innovation. The German system seems to be achieving all three, and could have important lessons for the United States.
See Recommended Books under “Blogs” drop down menu. Clicking on any book will lead one to the discounted Amazon site.
Roy J. Lewicki is the author of 'Essentials of Negotiation', published 2015 under ISBN 9780077862466 and ISBN 0077862465. Publisher: McGraw Hill Higher Education
The Conflict Resolution Training Program, Leader’s Manual, ISBN: 0-7879-6077-2. Prudence Bowman Kestner and Larry Ray
5 Languages of Appreciation in the Workplace.
Getting Your Way Every Day.
Congressional Democrats Want Medicare to Negotiate Drug Prices, Sarah O’Brien, August, 2021