This year, Congress will consider healthcare reforms to lower costs, increase access and empower doctors. As part of this legislative agenda, they may consider price controls in various forms, such as granting government the power to control Medicare Part D price negotiations. This would be a mistake — price controls in any form do not work and are not the solution to lower prices.
When it comes to Medicare Part D, the system already works. It has come in under budget, saving taxpayers billions of dollars, and grants patients access to medicines at low costs. Congress should not mess with this system at the expense of taxpayers and patients.
Price Controls Never Work as Advertised: Price Controls do not lower costs and do not increase access to new medicines. Instead, they allow the government to ration the supply and development of new life saving medicines at the expense of consumers, patients, and doctors.
Lawmakers have also proposed allowing the government to abolish Medicare Part D’s “Non-interference clause.” This would allow unelected bureaucrats to interfere in negotiations between healthcare stakeholders.
Under this system the government would tell companies how much they can charge and what they can buy, tells doctors what they can prescribe, and tells patients what medicines they have access to.
Prices Are Already Negotiated Down: When it comes to the price of prescription drugs, it is not a choice between government negotiation and nothing. The free market already works to reduce costs, and by giving negotiators an incentive to provide the lowest prices possible, while balancing access to care.
When Congress created Part D, a non-interference clause was included to prevent the secretary of Health and Human Services (HHS) from interfering with the robust private-sector negotiations that occur among pharmacy benefit managers (PBMs), pharmaceutical manufacturers, and pharmacies.
PBMs use a variety of methods, such as acquiring price concessions from both brand-name and generic drug manufacturers, rebates, and networks of more affordable pharmacies to lower drug costs for beneficiaries. PBMs also work with patients on drug adherence to keep them out of hospitals and doctors’ offices, which also helps to reduce healthcare costs.
Granting the government new power, will replace, rather than add to these savings. As noted in a study by PwC, PBMs act as a private sector alternative to price controls by putting downward pressure on low healthcare prices and therefore, they achieve what the government cannot.
It’s the Job of the Free Market, not Government to Set Prices: While forcefully reducing the costs of medicine may succeed in reducing the upfront costs of drugs, over the long term it is an incredibly destructive policy. By forcing lower prices, the government creates a disincentive to innovate because there are less profits available to finance the next generation of life-saving and life-improving prescription medicines. In turn, this results in higher long-term healthcare costs because illnesses need to be treated in a reactive, not proactive way.
Already, research and development is a timely and expensive process. It costs an average of $2.6 billion and more than a decade of research time for each new medicine that hits the market. Only ten percent of drugs that begin preclinical testing ever make it to market, so prices are in part set by these extensive development costs.
The VA Proves the Failure of Government Price Controls: The concern that government negotiation would back fire isn’t hypothetical – there are already case studies that prove this point. On one hand, prescription drugs administered through the Veterans Affairs agency are set by the government. On the other, Medicare Part D prescription drug coverage utilizes free market competition to put downward pressure on prices and maximize access. The performances of each program are stark.
Despite (or because of) not relying on government negotiation over prices, Medicare Part D works efficiently as it can instead focus on promoting competition amongst different providers. Different plans can compete based on the goal of maximizing access and minimizing coverage.
As this allows individuals to better select a plan that meets their needs, there is a 90 percent satisfaction rate and the program spends 45 percent less than initial projections, while monthly premiums are half of the projected amount. Even as spending remains low, the program covers a wide range of prescription medicines.
In contrast, VA address prescription drug coverage with a “one-size fits all” government run approach. This has led to VA covering as little as 40 percent of commonly used medicines, forcing close to one in four enrollees to purchase supplemental care.