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Aug. 18, 2022, 2:37 p.m. EDT

Democrats are wrong: Allowing Medicare to negotiate some drug prices won’t be a game-changer

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By Simon F. Haeder

Democrats hope their new  health care, tax and climate law  begins to rein in soaring prescription drug prices.

One of its most touted provisions allows  Medicare , America’s health insurance program for seniors, to negotiate some prescription drug prices for the first time, with some calling it “ game-changing ” and a  significant victory over the pharmaceutical industry . Drug manufacturers had stubbornly opposed any governmental regulation of drug prices  for decades  and are  likely to challenge the measure in court .

As a  scholar  who has  published extensively on the politics of health policy , I’m skeptical that giving Medicare the ability to negotiate prices on a handful of drugs will be as transformative as the law’s backers hope. While a good step, it is unlikely to make a significant difference in how much seniors pay overall for medicine.

Fortunately, there are several other provisions in the law that will do much more to meaningfully help seniors struggling with the high cost of prescription drugs.

Why U.S. drug prices are so high

Pharmaceutical innovation over the past few decades  has been tremendous . The  quick response  to the COVID-19 pandemic in terms of vaccine development and treatments perfectly exemplifies the incredible benefits that drug developers have brought to the world.

Yet these developments have come at a high price, particularly in the United States, where each person spends more than  $1,100 a year  on drugs – up from $831 in 2013. Indeed, Americans are paying substantially more than residents of  similar countries like Germany, the U.K. and Australia  – who pay $825, $285 and $434 per person each year, respectively.

People who need specific high-priced drugs are even more adversely affected.

Merck’s /zigman2/quotes/209956077/composite MRK -0.98% Dulera, an asthma drug, costs  50 times more in the U.S.  than the international average. Januvia, a Merck drug for diabetes, and Combigan, a glaucoma drug from AbbVie’s /zigman2/quotes/202428675/composite ABBV -0.13% Allergan unit, cost about  10 times more . Americans shell out, on average,  $98.70 for a vial of insulin , compared with the $6.94 Australians pay.

These costs impose a  big burden on Americans  –  1 in 5 of whom  skip medications because of the cost. Seniors are  particularly affected  by these problems.

The reasons for high prices are varied, including the  overall complexity of the U.S. healthcare system  and the  lack of transparency in the drug supply chain . But as I noted in a 2019  article in The Conversation , the biggest reason Americans pay so much more than people do elsewhere is simple: Pharmaceutical companies face no limits setting prices.

Changing the game – a little

The new law, known as the  Inflation Reduction Act  and signed into law on Aug. 16, seeks to change that.

The main mechanism to do it is by allowing Medicare to negotiate prices for some of the most expensive drugs. The act gives Medicare the ability to negotiate with drugmakers for 10 drugs starting in 2026 and 20 by 2029.

The law specifies that the medications Medicare is supposed to select must  account for most of its spending on drugs  and be name brands with no generic equivalents. Research has found that a relatively small number of drugs  are responsible for most spending .

Importantly, pharmaceutical companies may face civil penalties and additional taxes on drug sales if they do not comply with the requirements to establish a “maximum fair price” as laid out in the law.

The provision is expected to  save the U.S. government about $102 billion  by 2031 by allowing it to pay less on prescription drugs for Americans on Medicare – currently  63 million people . The annual savings amount to about 5% of what  Medicare currently spends on drugs .

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