Washington has big hopes, but little power, to negotiate drug prices
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WASHINGTON — It sounds simple enough: Let Medicare negotiate drug prices and help bring down prices for consumers.

With growing public frustration over the price of prescription drugs, Hillary Clinton and Bernie Sanders have made that idea a centerpiece of their campaigns, and congressional Democrats have been kicking the notion around in broad terms for years.

But policy experts say the candidates and lawmakers are exaggerating how much power the government actually has to drive down drug prices on a large scale. The reality is that any attempt to negotiate with drug makers would be challenging, without any guarantees of an outcome that would make a significant difference to most consumers’ bottom line.

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It also would almost certainly not involve Medicare officials sitting around a table, haggling with drug company executives over the price of every medication.

“There’s a huge gulf between the political talking points and the practical execution,” said Dan Mendelson, president of the Avalere Health consulting firm and a former health care official in President Bill Clinton’s budget office. “It’s extremely difficult to structure the program so the negotiations desired by Congress would be productive.”

The idea of negotiating with drug makers dates back to the creation of the Medicare prescription drug benefit in 2003, when Republicans — who controlled Congress at the time — wrote a section into the law that banned the Department of Health and Human Services from getting involved in talks over prices. Individual, private drug plans that provide the coverage for Medicare can negotiate — with some significant restrictions.

Ever since then, Democrats in Congress have floated proposals that would lift the ban. President Obama called for letting Medicare negotiate the prices of biologics (which are often made from living cells) and high-cost drugs in his budget proposal to Congress last year. And Sanders has introduced a bill that would get rid of the restriction, and says HHS “shall negotiate” drug prices for people with Medicare drug coverage.

These proposals have made good political sense. About three-quarters of the public believe the prices of brand-name prescription drugs are unreasonable, according to a poll last year by STAT and the Harvard T.H. Chan School of Public Health. About 7 out of 10 Americans, including two-thirds of Republicans, said Medicare should be able to negotiate lower prices for all prescription drugs. But none of the proposals to empower Medicare to begin negotiations has spelled out how that would work.

The Clinton campaign declined to provide more details on its plan. A Sanders aide said details would be left to the Centers for Medicare and Medicaid Services, which is part of HHS, and any legislation would just broadly define the federal government’s authority.

That could be a problem.

“I don’t know of anyone who has thought this through as a realistic policy innovation because it has never been even close to happening,” said John McDonough, a professor at the Harvard School of Public Health and a former aide to Senator Edward M. Kennedy.

Still, some Democrats are quietly working through the mechanics of drug price negotiations — aided by the work of researchers who have written about the subject for health care journals.

It’s not practical to expect the Centers for Medicare and Medicaid Services to negotiate every drug in the program, a process that would be unwieldy and time-consuming, Democratic health care experts say. It’s better, they say, to focus the effort on the most expensive treatments — and to allow the government to insist that they prove an added value over the drugs the program already covers.

The Clinton drug prices plan hints that this is where she would put her focus, saying she would allow Medicare to negotiate prices “notably for high-cost drugs with limited competition.” That’s more in line with the Obama budget, which limited its proposal to biologics and high-cost drugs. The Sanders bill doesn’t suggest any such limits.

For drugs where there is more competition, the most likely approach would be to give individual, private drug plans more power to negotiate on their own — because their ability to say “no” is significantly restricted right now.

The current Medicare rules require drug plans to cover “all or substantially all” medications under six protected classes. They include drugs that combat depression, tumor growth, schizophrenia, epilepsy, and viruses, as well as those medicines that make it less likely to reject an organ after a transplant.

The rule is there because the Medicare agency wanted to make sure the drug plans wouldn’t end up subtly screening out seniors who need those medications. But it also weakened the drug plans’ leverage with pharmaceutical companies — because there are large categories of treatments where they have no real ability to tell price-hiking drug executives to get lost.

“To negotiate, you have to have a credible threat of saying no,” said Kevin Outterson, co-director of the health law program at Boston University, who has written about Medicare drug pricing options for the journal Health Affairs.

That’s one reason the Congressional Budget Office, the official budget scorekeeper of Capitol Hill, has been reluctant to predict any actual savings through negotiations alone. Without a stronger ability to say “no,” the office wrote in its most recent analysis, the savings would be “negligible.”

But if Congress takes the handcuffs off of the private plans and lets them use formularies that are more like large companies’ health plans, Outterson said, “that would save billions.”

There’s just one problem: The Obama administration tried to do that on its own in 2014, proposing a change in the rules to get rid of some of the protected classes. A massive protest erupted, with drug makers teaming up with patient advocates and others to complain that Medicare drug coverage was being undermined. Congressional Republicans and Democrats complained, too. The administration quickly withdrew the changes.

Another, simpler option is to have Medicare press for rebates similar to the kind Medicaid gets for drug coverage for low-income people.

“That is a way to implement a negotiation. Of course, it’s not a true negotiation. It’s more the government using its executive authority to say, ‘We will get this discount’” or walk away, said Jack Hoadley, a Medicare Part D expert at Georgetown University and a former HHS official.

Negotiating drug prices “almost certainly means some kind of automatic pricing (or rebating) formula, as Medicaid has,” health care economist Austin Frakt, the creator of the Incidental Economist blog, wrote in an email.

A narrower version of that option would be to give the drug rebates to just one group of people: the 9 million low-income seniors and younger people with disabilities who are eligible for both Medicare and Medicaid. That’s the option both Clinton and Sanders chose for their plans.

This group — called “dual eligibles” — used to get the Medicaid rebates before the Medicare prescription drug program was created, but those discounts ended when Medicare Part D was launched. It’s also an option that can be manipulated, critics say: If a drug company knows it has to provide a certain discount off of its base price, it can just raise the price.

Even so, it is the rebates — not the negotiations — that are most guaranteed to produce actual savings. According to the Congressional Budget Office, the rebates could save the federal government as much as $103 billion over 10 years — a fact that both Clinton and Sanders noted in their drug plans.

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