Medicare Drug Prices

Nancy Pelosi and many other Congressional Democrats want the federal government to negotiate drug prices for Medicare enrollees.  They think this will lead to lower prices.  But as Alan Enthoven and Kyna Fong explain in the latest NCPA Brief Analysis, drug prices for seniors may not go down.  They may even go up.

The key to tough negotiations is the willingness and ability to walk away from the table with no deal.  Clearly the VA system does this.  Veterans have access to only one-fourth the number of drugs that Medicare covers.  But the wrath of senior voters and the lobbying power of pharmaceutical companies may make it impossible for Medicare to emulate the VA's approach.

A drug company with a (patent rights) monopoly has an incentive to price discriminate among private buyers – charging lower prices to some and higher prices to others.  But if the government negotiates a single price for everyone, the resulting price is likely to be higher than lowest prices paid by private buyers.

Under one common tactic, government links the price it will pay to the prices paid by other buyers – for example, by insisting on paying the lowest price paid by any buyer.  But instead of lowering the price paid by government, such a strategy may instead lead to higher prices charged to private buyers.  This appears to be what happened in Medicaid.

Comments (6)

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  1. Uwe Reinhardt says:

    Althgough I agree with Enthoven and Fong’s analysis, I am stunned that the VA makes available to veterans only 25% of the drugs available to Medicare beneficiaries. What is the source of that figure?


  2. Jerry Malooley says:

    I don’t know how you “Keep the Faith”, but thanks for continuing to push for market-based solutions.

    The Liberal lack of logic is beyond any additional energy I can spend trying to figure out Liberal “logic”!

    Appreciate all your efforts!

    Jerry Malooley
    Dir Hlth Policy and Plan Design
    IN State Personnel Dept.

  3. Jack Meyer says:

    John. good points. if it aint broke, don’t fix it!

  4. Joyce A. Luna says:

    I firmly believe that if the Federal government got out of people’s business this Nation would survive Just Fine.
    They have their noses in our bathrooms, bedrooms and
    under our carpets.
    I am against anything the Feds do!
    We cannot trust Congress, The Senate nor the president,
    If the truly Americans do not get it together, we will be
    in a mess bigger that the one we are in now.

  5. Bill Lewis says:

    Politicians will never fully realize that the people who run drug companies can figure out a way to beat any approach devised by the politicians to attempt to lower drug prices. The decisions of both groups are driven by money but the drug companies have more money and more IQ.

    End result. No real lowering of drug prices for seniors. Count on it.

  6. robert says:

    There is no way that the socialists can improve on our present medical system. Only the private sector can help, but then the socialists cannot control a necessity that we all need. It has not worked in one country yet and never will. One only needs to speeck to private M.D.s in Canada to realize that their system has failed. As a Canadian M.D., practicing in the U.S., it is really sad how the media and politicians have entrapped the people.