Letting Medicare negotiate drug prices may produce limited savings

Presidential candidates on both sides of the aisle, including the winners of last night's New Hampshire primary, have supported allowing Medicare to negotiate drug prices. But a brief from the Kaiser Family Foundation (KFF) says the financial windfall may be limited.

Last night's primary winners, Donald Trump and Sen. Bernie Sanders (I-Vt.), have both proposed allowing Medicare to negotiate drug prices, although Sanders has led the charge by introducing legislation that would require pricing disclosures from drug companies. According to KFF, 83 percent of the public supports allowing the federal government to negotiate drug prices for Part D beneficiaries, including 93 percent of Democrats and 73 percent of Republicans.

However, the report describes the practical challenges of drug price negotiations and the potential for only limited savings. The Congressional Budget Office (CBO) has said allowing the Department of Health and Human Services to negotiate drug prices would have a "negligible effect," since HHS Secretary Sylvia Mathews Burwell would have no way of leveraging deeper discounts than those already offered to private plans, according to the KFF report.

Instead, the CBO has said the government would need to establish a formulary that excluded certain drugs, and it questioned the Burwell's willingness to adopt that approach, KFF notes. The government could also find some potential savings in negotiating prices for unique specialty drugs that lack competition, but has not determined exactly how much savings would be tied to that approach.

Ultimately, the potential savings linked to drug price negotiations depend largely on the details of each candidate's plan, as well as which party controls the House and Senate come November, according to the report.

President Barack Obama has previously pushed to allow Medicare officials to negotiate drug prices in an effort to limit the rapid growth of Part D spending. A key provision of his fiscal year 2017 budget proposal, released Tuesday, includes requiring drug manufacturers to publicly report research and development costs and creating a federal-state Medicaid negotiating pool for high cost drugs.

To learn more:
- read the Kaiser Family Foundation issue brief

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