This week’s blog is a follow-up to last week’s blog and is a preparatory blog for this week’s virtual town hall with special guest, former Governor, Howard Dean. I guess that makes this blog pretty important, I’ll try really hard to make it worth your read.
Last week I gave some background on Medicare Part D, highlighting the good parts and identifying some ways it has changed and ways could be made more efficient. If you haven’t had a chance to read last week’s blog you can find it here. As promised, today’s blog will focus on proposed changes to Medicare that have been put forth, specifically focusing on H.R. 3, The Lower Drug Costs Now Act. But, before we jump into H.R. 3, there is an important point I would like to point out.
It’s been real easy to jump on the “bash the drug manufacturers” band wagon. It’s been popular to criticize them for the high cost of new drugs that have been introduced and for raising prices on existing drugs. Even the generic drug manufacturers have been criticized for some of their pricing decisions. I think all the negative rhetoric has glossed over an important fact. . . America has the best drug discovery and drug manufacturing capability in the world. It was America’s drug companies that moved with lightning speed to discover the vaccine that would beat COVID-19 and, just as important, they had the capability, know-how and access to the right raw materials, to quickly manufacture the millions of doses that have saved lives. This capability has been developed over decades and does not exist anywhere else, in either size or level of experience. This capability is tremendously valuable. As we confront the problems of prescription drug prices, we need to make sure that any solutions that are considered should also preserve this valuable asset.
Okay, now I’ve got that off my chest, let’s look at H.R. 3.
As I’ve said in my blog on the hearings concerning H.R. 3 (you can read it here) there are three main components of this bill:
- Lowering the out-of-pocket costs for patients.
- Restricting the amount an existing drug’s price can be increased year over year.
- Allowing government “negotiations” for drugs.
Lowering the out-of-pocket costs for patients – This approach is the most popular and comes the closest to bipartisan support. Having a cap on the yearly Medicare Part D out-of-pocket costs would be a huge relief to those patients who bear the brunt of the huge out-of-pocket payments they must make. It would truly give them a predictable “light at the end of the tunnel.” I think there is even more we can do. We could fix the convoluted business model that supports perverse incentives and inefficiencies that does not result in lower costs for beneficiaries.
Restricting the amount an existing drug’s price can be increased year over year – It seems like a logical way to deal with price increases but this idea is really a one-size-fits all approach which means it really doesn’t fit anything. Manufacturing and raw material costs don’t always follow the CPI. It doesn’t take into account any other business scenarios. What it really doesn’t account for are the times that drug costs are lowered. Tying drug cost increases to the CPI would tend to set the bar for all drugs to increase each year by the yearly CPI. I fear there will be ways that companies would find to “game” the system.
Allowing government “negotiations” for drugs – This approach has proven to be the most controversial. When you actually look at the way the prices are negotiated you realize that there is no negotiation at all. The government will use the price charged in foreign countries as the base to setting the price in the United States. If the manufacturer decides they aren’t going to yield to this price setting, they will be fined up to 95% of their GROSS sales. I don’t think this one-sided declaration fits the definition of negotiating.
Let me try to put these last two approaches into context. If the government inserted itself into the automobile gas business in the manner proposed in H.R. 3 they would dictate that you could only raise the total price per gallon for gas equal to the year’s CPI. So, the cost of prospecting for new sources, seasonal demand, cost of overseas gas, manufacturing interruptions, etc. would not be considered. The government would also force the price of gas to reflect the lowest cost in any region or state in the U.S. And, if you didn’t like the $2.40 a gallon price they set for your gas and you chose to sell it for $2.50 a gallon, you could be fined up to $2.38 for every gallon you sold. It would be safe to say you would be losing a lot of money on each gallon of gas you sold. It would also be safe to say that prospecting for new oil and gas sources would be severely curtailed given the price fixing capabilities the government would have,
There are many different ways to look at the changes proposed in H.R. 3. I can guarantee there will be much discussion this Wednesday as we talk about those changes. Don’t forget to register for the virtual town hall (see below) and come with your questions. And you can dial in. You won’t be seen on screen either way.
Wednesday, June 16, 2021
2:00 p.m. ET
Former U.S. Presidential Candidate, former Vermont Governor, and Physician
Former President and CEO of RetireSafe
They will discuss:
H.R. 3 – The Lower Drug Costs Now Act
After registering, you will receive a confirmation email containing information on joining the Town Hall.
Prefer to dial-in instead?
Use your mobile phone to click on the number below:
PhRMA, the drug companies association, has recognized that there needs to be changes. They have a real desire to take part in the discussion.