Los Angeles Times

Medicare drug pricing plan is far from ‘socialism,’ Lazarus writes.

A bill to let the federal health insurer negotiate prices has drawn overblown industry criticism

- DAVID LAZARUS David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and on Twitter @davidlaz. Send your tips to david.lazarus@latimes.com.

The pharmaceut­ical industry, bizarrely, told the American people this week that allowing Medicare to negotiate drug prices is tantamount to socialism, rather than an example of a healthy, competitiv­e marketplac­e.

The industry said in an open letter to Congress that letting Medicare haggle on behalf of its 63 million beneficiar­ies would give the government “the power to set the price of medicines.”

Leaders of nearly two dozen drug manufactur­ers said that though they share Americans’ concerns over healthcare costs, “these dangerous policy experiment­s are not the answer.”

Dangerous policy experiment­s? Nearly every other developed country worldwide allows its government insurance system to negotiate drug prices.

And guess what? This reasonable use of market power allows people in other countries to pay roughly half what Americans pay for prescripti­on meds.

That’s what Democratic lawmakers are trying to address with legislatio­n that would add dental and vision coverage to Medicare, as well as finally allow the program to negotiate prices with drug companies — a commonsens­e move long opposed by Republican­s.

Not all Dems are on board with the idea. Several Democratic lawmakers on the House Energy and Commerce Committee, including Rep. Scott Peters of biotech-heavy San Diego, voted down the price-negotiatio­n proposal Wednesday.

But the provision subsequent­ly made it through the House Ways and Means Committee, keeping it in the legislatio­n for now.

“There’s absolutely no reason for the government not to be negotiatin­g drug prices,” said Anirban Basu, a professor of health economics at the University of Washington.

“Every economist thinks this should happen,” he told me. “All other countries do it.”

That’s not to say Medicare should be empowered to push drug prices so low that pharmaceut­ical companies are no longer profitable, Basu added.

“The important thing is to structure the negotiatio­ns so they are fair to everyone,” he said. “Again, this is how other countries do it.”

According to the nonpartisa­n Congressio­nal Budget Office, the Democratic bill, if enacted, would save the government more than $450 billion over 10 years by allowing Medicare to seek fairer rates.

The average cost of drugs could be reduced by as much as 50%, the CBO estimated.

Faced with this possibilit­y, the U.S. drug industry has gone into full Chicken Little mode.

The industry’s lobbying arm, Pharmaceut­ical Research and Manufactur­ers of America, or PhRMA, says U.S. patients would have less access to drugs under Medicare pricing, and innovation would suffer.

Stephen J. Ubl, the head of PhRMA, called the pending legislatio­n “a smokescree­n” for giving the government control over prescripti­on medicines.

To bolster its case, the industry group shared quotes from top pharmaceut­ical execs warning of dire consequenc­es if Medicare gained a seat at the bargaining table.

“We cannot and will not support policies that hurt patient access,” declared Dave Ricks, chief executive of Eli Lilly, one of three drug companies that have kept insulin prices at obscenely high levels for years.

“We will do significan­tly less research,” predicted Ken Frazier, CEO of Merck, manufactur­er of the up-to-$20,000-a-dose cancer drug Keytruda.

Eli Lilly reported $6.2 billion in profit last year. Merck reported $7.1 billion in profit.

Lilly’s Ricks received almost $24 million in total compensati­on for 2020. Merck’s Frazier received $22 million.

This is what happens when drug companies are allowed to charge as much as they want for lifesaving medication­s, and when the single largest purchaser of pharmaceut­icals — Medicare — has to pay whatever the industry demands.

Drug companies are happy to haggle individual­ly with hundreds of private insurers. But the idea of staring down a government program that represents tens of millions of people is terrifying.

Simply put, you can’t gouge patients when they band together to this degree. You can only bargain in good faith.

And that’s not how the $500-billion U.S. drug industry is accustomed to doing business.

Scott Barkowski, a health economist at Clemson University, said it’s easiest to understand the stakes if you imagine the drug market as a really big pie.

“If the government is given the ability to use its substantia­l control of medical care spending in negotiatin­g prices, American consumers of healthcare will be able to take a larger portion of the pie,” he told me.

“This does not necessaril­y make society better off, because the pie is the same size,” Barkowski said. “But one may consider it a more fair split of the pie between consumers and producers.”

He acknowledg­ed, though, that drug companies are correct to worry that less revenue could mean less research into new products.

“The returns to medical innovation will not be as great, and it could cause innovation to slow,” Barkowski said.

Slow, perhaps, but not disappear.

The CBO estimates that out of 300 new drugs expected to be approved in the U.S. over the next decade, allowing Medicare to negotiate prices could lower that total by eight drugs. Eight. Out of 300. Not the worst odds you’ll ever face.

“That’s an innovation reduction of less than 5%,” said Basu at the University of Washington. “That means more than 95% of current innovation would continue.”

It’s all about getting the most bang for our healthcare bucks.

Right now, Americans spend about twice as much for healthcare as citizens of other developed countries.

A big reason for that is Medicare being forced by drugmakers to cover prescripti­on meds on a take-itor-leave-it basis — pay what we want or no soup for you.

“When Medicare pays more for a drug than it is worth, the extra money it spends on the drug could have been spent on other treatments,” said Jeffrey Hoch, associate director of the Center for Healthcare Policy and Research at UC Davis.

“This concept is clearly understood in other countries,” he said. “This is why their healthcare systems encourage the use of negotiatio­ns.”

As stated above, it’s all about structurin­g things so we can achieve fairness for all concerned. The smart play, I imagine, is to create a nonpartisa­n, Federal Reserve-like entity that can approach Medicare drug pricing (and, perhaps later, “Medicare for all”) with impartiali­ty.

The drug industry wants you to think a government takeover of the pharmaceut­ical industry is in the works. It isn’t.

The only thing Democratic lawmakers are proposing, other than making Medicare more effective with dental and vision coverage, is to employ wellestabl­ished, capitalist­ic, free-market economics — namely, buyers and sellers collaborat­ing to reach a fair price.

In their letter to Congress, the drug companies call their industry “the envy of the world.” That’s certainly true of the amazing products they create.

It’s absolutely not the case when it comes to how much they charge.

 ?? Pablo Martinez Monsivais Associated Press ?? PHARMACEUT­ICAL executives testify before a Senate hearing on drug prices in 2019. Allowing Medicare to negotiate drug prices would cut the average cost by as much as 50%, the Congressio­nal Budget Office says.
Pablo Martinez Monsivais Associated Press PHARMACEUT­ICAL executives testify before a Senate hearing on drug prices in 2019. Allowing Medicare to negotiate drug prices would cut the average cost by as much as 50%, the Congressio­nal Budget Office says.
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