When Amazon, Berkshire Hathaway, and JPMorgan announced they were creating a new health care company in 2018, it raised the possibility of the purchasing power such a company could have. Although the venture has since been disbanded, imagine the purchasing power the federal government could wield for buying drugs if all federal agencies that purchase prescription drugs were combined into a single purchasing pool.
Today, only the Veterans Administration, Department of Defense, Public Health Service, and Coast Guard — known collectively as the big four — maximize their purchasing clout to help save hundreds of millions of dollars a year. The Veterans Health Care Act of 1992 placed a cap on drug makers’ prices to charge the big four. They use a national drug formulary (preapproved list of medications) and steer patients to lower-cost drugs while buying large volumes of medications, increasing their purchasing power with pharmaceutical manufacturers.
Medicare and a host of other federal agencies are prohibited by law from accessing this kind of purchasing power.
President Biden’s “Build Back Better” plan would allow Medicare to negotiate directly with drug manufacturers. While an important step, it is the wrong step — another example of political complacency that refuses to address the significant problem of high drug prices across all federal agencies, not just Medicare.
While prescription drug prices have been the focal point of many political campaigns and the empty rhetoric that coincides, Congress has an opportunity to build on what the Big Four have accomplished: reducing costs through tough negotiations. And while the increased politicization has resulted in some pharmaceutical manufacturers and others addressing costs, others have refused.
The opportunity exists to change the purchasing paradigm and extend the power of the big four across all federal agencies.
The first step is to eliminate the purchasing fragmentation by creating a single federal prescription drug contracting program. Establishing a Federal Prescription Drug Purchasing Contract would consolidate purchasing clout through one federal agency. This contract would include Medicare, Medicaid, Veterans Administration, Department of Defense, Public Health Service, Coast Guard, Bureau of Prisons, Peace Corps, Immigration and Customs Enforcement, National Aeronautics and Space Administration, Department of State, Federal Employee Health Benefits Plan, and others. There is strength in numbers and a confederacy of these agencies would provide drug manufacturers with a formidable opponent at the negotiating table.
The second step in maximizing savings for the government and patients is implementing a national prescription drug formulary for government-funded health care programs. Rather than every federal program having its own formulary, the implementation of one national prescription drug formulary established by a group of independent experts would:
- Eliminate the need for multiple pharmacy benefit managers (PBMs) and wholesalers to promote medications that would yield the greatest drug rebates and lower additional fees charged by middlemen
- Focus on cost, efficacy, and effectiveness and cost — not which medication will yield the highest rebate
- Further the savings achieved by the Federal Prescription Drug Purchasing Contract through tough negotiations with pharmaceutical manufacturers for generic, brand, specialty, and genetic therapies.
The third step allows state Medicaid programs — managed through state and federal partnerships — to negotiate and exceed the Federal Prescription Drug Purchasing Contract through its direct negotiations and seek even more advantageous pricing. The creativity of State Medicaid prescription drug programs should never be handcuffed by a federal agency.
The fourth step in creating the Federal Prescription Drug Purchasing Contract eliminates the need for the Medicaid Best Price law. Instead, it would require drug manufacturers to charge the Medicaid program the lowest or “best” price they negotiate with any other buyer and send a rebate check to every state’s Medicaid department, so they also receive the same “best” price. If the private sector can negotiate deeper savings than what the new federal government plan could achieve, nothing should stand in the way, and the government should ask how and why. Moreover, if a state Medicaid program achieves a best price lower than the Federal Prescription Drug Purchasing Contract, the federal program would have the ability to claim that price to further lower their costs.
The fifth step encompasses establishing a panel of experts to transparently guide the government’s national drug formulary. These experts would serve at the pleasure of the president, ensuring that every president has the power to appoint his or her choices without conflicts from any previous administration.
Why is such a panel needed? While various federal agencies have valuable expertise in prescription drugs, the creation of a panel of experts, call it the Federal Pharmacy and Therapeutics Committee, would guide the federal government on efficacy and effectiveness. In other words, where there are multiple generic medications, the committee would recommend two and preclude the need for brand-name medications. And when new medications enter the market, the Federal Pharmacy and Therapeutics Committee would recommend when and if these medications should be added to the national formulary. With the growth of biosimilars, this may be another area of savings.
Sixth, the Federal Prescription Drug Purchasing Contract would contract one prescription drug wholesaler and one pharmacy benefit manager, eliminating multiple contracts with different wholesalers and PBMs.
Seventh, transparency would be the underpinning of the Federal Prescription Drug Purchasing Contract. The value of up-front pricing would require the removal of all rebates, back-end promotional revenue, and full disclosure on fees paid to intermediaries. This no-frills data and information could be shared with state Medicaid programs. This would allow state Medicaid programs greater negotiating power to seek the lowest net cost of prescription medications.
Aggregating all federal programs into a single purchasing pool for pharmaceuticals could leverage significant savings. And with the additions of a national prescription drug formulary and a distinguished expert prescription drug efficacy panel advising the Federal Prescription Drug Purchasing Contract Agency, any side deals or other non-disclosed incentives that may have been used to help a specific medication gain access to a formulary would be eliminated or disclosed.
Stripping away Congressional and White House complacency can achieve significant savings on what the country spends on pharmaceuticals. And it takes the authority away from federal agency department staff and consolidates it within one federal agency and staff. Most importantly, increased transparency assists the public to become better educated about why one specific medication is on the national prescription drug formulary instead of another.
Effectiveness in contract negotiation and efficacy in best-in-class medications, both brand and generic, will help demonstrate how the government’s purchasing power can bring more significant savings to taxpayers, eliminate fraud, waste, and abuse, and build on the success of the Veterans Administration and the Department of Defense in reining in the cost of prescription medications.
The need is great. The time for real action, not more rhetoric, is now.
Jeffrey R. Lewis is the president and CEO of the California-based Legacy Health Endowment. The views expressed here are his own.
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