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Negotiating Part D

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Pros

According to Rep. Maurice Hinchey (D- NY), allowing the the Department of Health and Human Services to negotiate for drugs covered by Medicare Part D would save the federal government $156 billion over 10 years. "This is the right thing to do,” said Hinchey, “and I think we may have a chance to get it done through the ongoing negotiations over reducing our national debt."

A 2010 study by the National Committee to Preserve Social Security and Medicare found that allowing the government to negotiate Part D prices could save taxpayers an estimated $24 billion annually.

President Obama has also indicated his support for giving Medicare the authority to negotiate drug prices with drug companies.

Cons

The proposal is opposed by Republican members of Congress, the pharmaceutical industry and conservative groups. Opponents believe private Medicare Part D plans already keep prices low through competition among more than a thousand different plan choices.

The American Action Network, conservative non-profit, vowed to spend $1.6 million on advertising against the negotiation initiative. Brian Walsh, the group's president, said "This plan would result in higher premiums and higher prescription drug costs for millions of older Americans."

The Pharmaceutical Research and Manufacturers of America (PhRMA) has maintained that insurance companies and pharmacy benefit managers already manage price negotiations and include them in drug formularies which have helped lower drug costs.

“Government imposed price controls in Part D could fundamentally alter the competitive nature of the program and threaten its success,” said PhRMA vice president Karl Uhlendorf said in a written statement. “Savings achieved in Part D are passed on to beneficiaries, contributing to the program’s success in holding costs far below projections, while achieving very high marks from seniors.”

Where It Stands

An alternative to both negotiated drug pricing and the status quo was offered by Boston University School of Law associate professors Aaron Kesselheim and Kevin Outterson in their July 2009 article published in Health Affairs journal. Other options to consider include value-based pricing, expansion of generic substitutes, increased formulary diversity, allowing drug importation, and limited antitrust waivers. Some of these options could reduce government expenditures without direct price negotiations, according to the authors.

Many states are trying new ways to control the costs of medical programs that subsidize drug costs for low-income and elderly people. In Minnesota, Governor Mark Dayton required competitive bidding for insurers competing for the state's $4 billion annual medical assistance business.

Republican candidates for president in 2012 have proposed replacing the current Medicare system with cash subsidies. Seniors could use the cash to purchase health insurance on the open market.

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