Despite misleading ads, allowing drug negotiations would lower prices

By C.V. Allen, M.D.
The Modesto Bee, April 14, 2016

Sunday’s Bee included an advertisement (Page 2A) picturing Rep. Jeff Denham and a concerned elderly lady on Medicare being told “you could lose access to medicines you need.”

The ad thanked Denham for “protecting” Medicare Part D prescription coverage and urged readers like the woman pictured to oppose a bill in Congress that would allow Medicare to negotiate drug costs directly with pharmaceutical companies.

But such negotiations are a common cost-control method already used by the Veterans Administration, Medicaid and every industrialized nation that runs a health care system for its citizens.

Yet this bill is being fiercely fought by the pharmaceutical industry, which stands to lose considerable profits if it passes. That’s what the ad is really about.

At the insistence of the pharmaceutical industry, the original 2003 Medicare Part D (drug bill) forbade Medicare to negotiate costs with drug companies. That would be a strange request from a market-driven industry. But not so strange when you realize, in the words of Republican Rep. Walter Jones of North Carolina, “The pharmaceutical lobbyists wrote the bill.”

It was 1,000 pages long and voted on at 3 a.m.

Now, there is movement to eliminate this restriction on negotiations. Naturally, the pharmaceutical industry opposes this effort because, it says, negotiated prices won’t make any difference in the cost of the medicines. Wrong.

Medicaid currently has the ability to negotiate prices with drug companies. For similar medications, prices are approximately 40 percent less than what Medicare recipients pay. The Wall Street Journal cited studies suggesting that if Medicare was allowed to use its heft to negotiate in the marketplace, it would save about $16 billion annually. If it will have “no effect” on prices, why the violent opposition from big pharma?

One reason the drug companies love to cite is that if Medicare drug prices are negotiated, drug research would dry up. Wrong.

Drug companies spend almost twice as much on marketing as they spend on research. Many of the scientifically innovative drugs approved from 1998 to 2007 came from universities and biotech firms, not big pharmaceutical companies.

Meanwhile, negotiating drug prices is standard procedure in industrialized countries whose medication costs are uniformly less than ours – many by half.

Drug companies also contend that competition among various commercial insurers lowers drug costs already. Wrong again.

That’s the way it should work, but doesn’t. A recent study showed that eight of the 10 drugs that had the big cost increases from 2013 to 1014 were made by multiple manufacturers. Expanding that to the 15 drugs with the largest price increases shows that nine were made by multiple manufacturers. With so many manufacturers from which to choose, negotiating with several companies to get the best price would certainly lower the prices – assuming capitalism still works.

Another argument is that Medicare has more medication options than the Veterans Administration or Medicaid. That’s true, but irrelevant.

If 10 drugs do the same thing, why not limit the formulary to the least expensive drug? The VA formulary seeks out the least expensive choice among many drugs that have the same use and same benefit, lowering total costs to patients. There is no evidence the smaller but less expensive VA formulary alters outcomes or treatment of veterans. The same is true for those who depend on Medicaid.

If the concerned elderly lady in the ad wants to worry about something, perhaps she could focus on the growing negative influence of corporate America on our fragmented and expensive health care system.

C.V. Allen is a semi-retired physician in Modesto.