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By allowing the federal government to negotiate with drug makers, Medicare and its beneficiaries could save an estimated $2.8 billion in a single year for the top 20 most commonly prescribed medicines, according to a new analysis by Democrats on the Senate Homeland Security and Governmental Affairs Committee.

In crunching the numbers, the committee staff found that other government agencies that are permitted to negotiate with drug companies — such as the Department of Veterans Affairs and the Department of Defense — were able to secure pricing that rose at “significantly lower rates” than wholesale prices for the most widely prescribed brand-name drugs in Medicare Part D.

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  • I would argue it would be worthwhile pointing out the economic and real patient health trade-offs associated with the proposal. For instance:

    1) The mechanism by which Medicare would bring down prices is monopsony power, which inefficiently / artificially reduces prices (given its’s one concentrated buyer, rather than many) relative to the value of the treatment. That has serious incentive effects, not for the drugs already on the market today, but for the next treatment to reach the market. As other countries engage in this practice already, it’s important to understand that they do so because they can piggyback off of a really large, wealthy nation (the U.S.) who to date has been willing to pay a market price. Turn off that spigot, and in equilibrium less risk capital will flow towards innovation in health care (and instead will go towards other industries).
    2) This tangibly results in real, definable, winners and losers. Winners in that taxpayers save money on drugs available today. Losers in that underserved patient populations (e.g., Hep C before Solvadi showed up) continue to suffer. The greatest privilege, after all, is being free from a fatal / unmet health condition.

    • Both points you discussed are what you typically hear out there but they are simply untenable.
      First of all, yes, other (OECD) countries pay significantly less for the same drug compared to what the US is paying. Price negotiations, often even based on cost-effectiveness outcomes, and re-importation of drugs are instruments to increase price pressures on manufacturers in (for them) economically interesting markets. Guess what, both does not happen in the US, since PhRMA lobbied themselves out of it for years.
      And what tells you that other countries are “piggybacking” off of the US? There is no reason to believe that, if prices in the US decrease, prices in other countries would increase (and vice versa). Your claim is completely without merit. The pharmaceutical industry currently spends between 3% and 20% (depending on who reports it) on R&D. At least twice as much is put into marketing and ads. The US is one of two or three countries in the world, where direct-to-consumer ads are allowed. Maybe this should be changed first, so that less money is wasted? Not even talking about the dubiousness of direct-to-consumer ads..
      Secondly, to refute your second point I will come back to my first point. Take a look at the fractions spent on R&D versus marketing/advertising and tell me again there is no money available for research.
      Your line of arguments are completely based on emotions (“the US is the piggybank of the world”, “underserved patient populations continue to suffer”, etc.), but either you don’t know better or if you know better it’s completely bogus.

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