Medicare Compliance & Reimbursement

Why repealing the ban could be useless for Part D.

Although many industry leaders cheered the Democrats' promise to repeal the legislation that bans Medicare from negotiating drug prices directly with pharmaceutical companies, a new brief finds that this may not actually lower drug prices for Medicare.

What lawmakers are forgetting is that market power will often win out over bargaining power, claims a new issue brief from the National Center for Policy Analysis (NCPA).

Although Medicare is the largest buyer when it comes to prescription drugs, many pharmaceutical companies have patents on their drugs, giving them monopolies on many key drugs, NCPA says. "That means the seller cannot be threatened with replacement by a substitute. Instead, the only threat is that the two sides fail to agree and the drug is withheld from the market."

So if the government's only bargaining power is to say 'no,' this could leave Medicare in a sticky situation. A private plan could walk away from negotiations with a drug company without many problems, but the government would suffer political backlash if it doesn't cover the widest range of drugs for benes, NCPA reasons.

Also, "if the government acts as one large buyer for Medicare, the cost to pharmaceutical companies of granting discounts becomes greater," the brief points out.

Another concern is researchers' findings that since Medicaid's "best-price" rule passed in 1990, drug prices have risen for the private sector, NCPA says.

"Empowering the government to negotiate with pharmaceutical companies is not necessarily equivalent to achieving lower drug prices," NCPA maintains. "In fact, neither economic theory nor historical experience suggests that will be the outcome."

To read the issue brief, go to www.ncpa.org/pub/ba/ba575/ba575.pdf.