America is at a crossroads when it comes to paying for prescription drugs. Down one path, pharmaceutical companies will continue hiking drug prices much faster than wages grow for typical Americans. They’ll continue launching headline-grabbing drugs at outrageous list prices, even when there are questions about whether those drugs truly work. In this scenario, the result of drug companies’ unchecked power could be that many more Americans will borrow for life-saving treatments the way they borrow for homes and educations. Taking out a mortgage for survival is a grim prospect.
Down another path is a course correction on America’s runaway health care costs. Congress is debating a measure that would allow Medicare to negotiate a fair price with pharmaceutical companies. Negotiation would use the bargaining power of the 50 million seniors who get their medicine through Medicare Part D, taking their collective power back from the drug companies who control it today. It is essential to avoid the wrong path and to lower costs for Americans through Medicare negotiation while continuing to promote genuine breakthroughs, largely driven by small, innovative biotech companies.
The stakes are high. Earlier this summer, Gallup reported an estimated 18 million Americans were unable to afford a prescription due to its cost at some point this year. The United States is paying three times more than other countries for brand-name drugs. Nearly half of Medicare Part D spending goes toward paying for seniors’ medicines in the catastrophic coverage phase, after they’ve already spent thousands of dollars out of pocket on prescriptions.
Since Medicare began paying for prescription drugs, it has been dealing with pharmaceutical companies with one hand tied behind its back. That’s because Medicare is prohibited from negotiating better prices. As a consequence, drug manufacturers are able to create monopoly conditions, set high prices while raising them dramatically every year, and coast on revenue from old products. Meanwhile, taxpayers and seniors are asked to foot the rising bill for their drugs, no questions asked.
The debate over the shape of a Medicare negotiation policy is ongoing. And informing that debate are a few basic principles.
The drugs that make up the largest share of Medicare’s expenses are often used to treat cancer, heart disease, diabetes, and rheumatoid arthritis. For high-spending drugs like these, a maximum fair price will be determined so Medicare isn’t paying more than it should. That approach is used today for other treatments and services in Medicare. Prescription drugs should be no exception.
The negotiation with Medicare would look like this: A pharmaceutical company can present evidence and make the case that their product merits its price. Negotiations conclude when the company and Medicare arrive at a mutually acceptable price, but companies can’t drag out the negotiations forever. If they try, they would face a steep penalty. The result of that negotiation would be lower drug costs for families at the pharmacy counter, and for taxpayers.
The pharmaceutical industry is quick to claim that allowing Medicare to negotiate would hamper innovation and result in fewer new drugs coming to market. This argument simply doesn’t hold water under scrutiny.
Oftentimes the new drugs that companies herald as breakthroughs amount to “me-too” products, which are similar to existing drugs, or a reformulation of an old drug for a new treatment.
Furthermore, not all research and development is funded by pharmaceutical company revenue. The first stages of research that lead to pharmaceutical breakthroughs are often funded with taxpayer dollars. When it comes to the COVID-19 vaccine, the Congressional Budget Office has estimated the federal government spent $19.3 billion on vaccine development. It’s worth celebrating that this American investment resulted in such a rapid and effective vaccine.
Drug companies also want Americans to believe that they’re throwing every last dollar of revenue into developing the next miracle cure, but that’s just a public relations fantasy. According to a study of financial data conducted by the House Oversight Committee, the 14 largest drug companies spent $577 billion on stock buybacks and shareholder dividends between 2016 and 2020, a timespan that included the windfall those companies got from the Trump tax law. They spent far less on research and development.
The reality is, allowing Medicare to negotiate can be done in a way that lowers prices for families and taxpayers while preserving real innovation that’s delivering real improvements to Americans’ health. These priorities are not mutually exclusive.
It has become clear that Americans are ready for Congress to take action. In a recent poll from the Kaiser Family Foundation, 83 percent of Americans supported allowing Medicare to negotiate, including 71 percent of Republicans. Remarkably, the poll found that support for Medicare negotiation remained at 82 percent even after respondents were presented with industry counterarguments. The scaremongering has gone on for too long, and the prices have grown too high, to wait any longer.
A robust Medicare negotiation policy is key to putting America’s drug pricing system on a more sustainable path, but it’s not the only step that should be taken. One policy would limit price gouging by tying what Americans pay for drugs to the rate of inflation. If a drug maker wants to increase prices by double or triple the rate of inflation, they would have to pay back taxpayers. Another key protection for seniors would create an out-of-pocket maximum for Medicare Part D, so older Americans would no longer have to choose between financial ruin or an effective treatment. These ideas have strong bipartisan support and will play a significant role in creating an equitable system.
There is no more time for delay. Earlier this year, the Food and Drug Administration approved Biogen’s Aduhelm, a drug designed to limit the progression of Alzheimer’s. Millions of families are desperate for an effective treatment for this terrible illness. But Aduhelm was approved with limited evidence of its effectiveness. And the company wants to charge $56,000 per patient per year. Not only is that unaffordable for the vast majority of seniors walking an economic tightrope — it threatens Medicare’s finances. There will be more treatments like Aduhelm in the coming years. Medicare must be empowered to negotiate on behalf of seniors to keep prices in check.
Democratic US Senator Ron Wyden of Oregon is chair of the Senate Finance Committee.