Allowing Medicare to directly negotiate drug prices will hurt seniors’ access to new drugs
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President Trump's recent attack on pharmaceutical companies as "getting away with murder" is the stuff of headlines. He also commented that the federal Medicare program could save billions of dollars if the program negotiated prices directly with pharmaceutical companies. But lawmakers and the public should understand what direct Medicare drug price negotiations might mean for seniors' access to needed treatments. 

As of now, price negotiations for Medicare drugs are administered by Part D plan sponsors, who in turn negotiate directly with pharmaceutical companies. What could happen if Medicare takes over of this process?

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We need not look any further than the Veterans Affairs (VA) healthcare system for a glimpse of that reality. The VA pharmacy benefits program already negotiates drug prices and pays less for drugs than many other providers. To contain costs, the program does not cover many of the newest, most effective treatments. 

Many of these include newly approved drugs with no substitutes available. According to an August 2016 report by Xcenda consultants, only three of the 25 most innovative drugs were available in the VA drug formulary. Compare that to 11 Medicare Part D plans that covered all 25. The majority of Medicare plans covered 21 of the 25 drugs. 

While "doing something" about prescription drug prices might be politically popular, it also risks leaving patients far worse off. Should the incoming administration pursue the same drug price negotiations the VA already employs, we should expect the same dismal results that keep some of the most effective treatments out of patients' hands.

Before taking such a risky approach, there are three essential things that we must understand about drug costs and how we can address the challenge.

Innovative treatments are expensive to develop. While the cost of some prescription drugs can be high, consider that it takes an average of more than $2.5 billion to bring a drug to market, according to the Tufts Center for the Study of Drug Development. By allowing the marketing of drugs earlier in the approval process, speeding up approvals for competing compounds, and reducing the costs to bring new treatments to market, the FDA could allow for more price competition without harming innovative and access to effective treatments.

Innovative drugs offset other healthcare costs. Medicine has changed dramatically for the better, and mostly because of the new drugs clinicians have in their toolbox. A 2012 Congressional Budget Office study estimated that for every one percent increase in medication utilization, overall Medicare program costs fell by one-fifth of a percent.

Since 1991, the nation's cancer death rate has dropped by 25 percent, according to a recent report by the American Cancer Society. Some cancers, like chronic myelogenous leukemia, are no longer a death sentence; metastatic melanoma, previously a death sentence, can now sometimes be controlled such as was done for President Carter. Hepatitis C can be cured with a short course of pills; and today the life expectancy of HIV patients is about the same as the general population. It is important to remember that today's drug treatments are, often, enormous advances in disease treatment. 

Price controls will kill innovation. The United States is the engine of innovation in healthcare, producing roughly half of the world's new drug treatments in the past decade. But the current proposals could threaten patient access and the development of future treatments. Health care economists John A. Vernon and Joseph A. Golec found that price controls imposed in the EU between 1986 and 2004 not only reduced R&D spending, they also "resulted in about fifty fewer new drugs and about seventeen hundred fewer scientists employed in the EU." Rather than feasting on the goose that lays the golden eggs, we should be looking for ways to grow more geese.

Medicare is facing serious, long-term funding challenges. There is no question that new approaches to this half-century old program are overdue. But, we shouldn't repeat the mistakes of the past. Instead, Medicare beneficiaries should have more freedom to choose the coverage and services that best meet their individual needs and preferences.

Before following the same ill-conceived path of the VA pharmacy program, we need to understand the risks of that approach and decide if we are willing to surrender control over these important healthcare decisions to the government.

Dr. Rafael Fonseca, a hematologist and oncologist in Phoenix, Ariz., is a visiting fellow in healthcare policy at the Goldwater Institute.


The views expressed by this author are their own and are not the views of The Hill.