Drug Pricing

    Is allowing Medicare to negotiate drug prices the answer to the pricing debate?

    When the Medicare Part D prescription drug program was introduced in 2003, it stipulated that HHS could not negotiate or set prices of prescription drugs. Over the decade and a half since, Democrats have proposed lifting the ban (or modifying it) including President Obama in the 2017 budget proposal and a recent bill by Senator Bernie Sanders.

    The debate recently escalated after FDA approved a series of new, high-profile, expensive drugs, and some drug companies opportunistically boosted the prices of several long time generic drugs.

    President-elect Donald Trump, as well as Hillary Clinton and Bernie Sanders when they were campaigning, endorsed allowing Medicare to negotiate drug prices as a way to save money, rein in health care spending, and cut the highest price prescription drugs.

    Furthermore, according to a Kaiser Family Foundation Health Tracking Poll conducted in August 2015, 83 percent of the public favors allowing the federal government to negotiate drug prices for Medicare beneficiaries.

    Opponents argue that Medicare would have to be able to say no to drugs it deemed too expensive, which could deny patients access to key medications.


    We asked our experts whether allowing Medicare to negotiate drug prices was the answer to the pricing debate:

    Geoffrey Joyce, Ph.D. says there is a trade-off between set prices today and innovation later:
    “Government set prices provide short term budgetary relief to the Medicare program, at the cost of reducing the number of new drugs in the future that could benefit people of all ages, in and outside of the U.S. There are better ways to ensure access to high cost therapies without reducing the incentives to innovate.”
    Jeffrey McCombs, Ph.D. says marketplace works pretty well despite the attention on a small number of generic drugs:

    “Most of the Part D plans covering Medicare beneficiaries already negotiate price and the Medicare Advantage Plans enjoy significant discounts off of list price. Stated differently, a significant proportion of Medicare beneficiaries already enjoy the benefits of competitive pricing.

    The problem with the price of a small volume generic drug being aggressively priced resulted from the fact that only one manufacturer was making the drug, and that bringing on line additional manufacturers was a time consuming and burdensome process. These situations can be avoided by insuring that the number of manufactures of these drugs never drop to a single producer.

    The marketplace works pretty well, even for branded medications. Two years ago, Gilead brought the first highly effective drugs to treat hepatitis C to market at very high prices per course of therapy. Since that time, other companies have introduced equally effective products and the price paid by large buyers such as Kaiser Permanente and the VA have dropped dramatically without government intervention.”


    Jeffrey McCombs, Ph.D.
    Jeffrey McCombs, Ph.D.

    Director of Graduate Studies,
    Schaeffer Center

    Associate Professor,
    Clinical Pharmacy and Pharmaceutical Economics & Policy

    Geoffrey Joyce, Ph.D.
    Geoffrey Joyce, Ph.D.

    Director of Health Policy, Schaeffer Center

    Chair of Pharmaceutical and Health Economics Department,
    School of Pharmacy

    “There are better ways to ensure access to high cost therapies without reducing the incentives to innovate.”
    Geoffrey Joyce, Ph.D.
    Director of health policy at the Schaeffer Center and chair of pharmaceutical and health economics department at the USC School of Pharmacy


    Kukla Vera
    Director of External Affairs
    Phone: 213-821-7978

    Leonard D. Schaeffer Center for Health Policy and Economics


    Stephanie Hedt
    Policy Communications Associate
    Phone: 213-821-4555