6

The other driver of high US drug prices is a lack of bargaining power. Other countries have centralized/universal health care organizations that can and do negotiate with pharma companies on price. The US has Medicare and Medicaid. Although they are not universal, they do comprise about 30% of drug sales in the US, which should give them plenty of bargaining power.

Legal (prescription and nonprescription) drug costs in the US are insanely high because a Bribed Congress passed fiat laws to mandate this as a "favor to their corporate bribers.

They passed a law making it a felony to import drugs from ANY other nation (including France, England, and Canada, whose safety laws are even more stringent than ours).

They ALSO passed a Medicare "Reform" Law which specifically PROHIBITS Medicare from negotiating drug, and Durable Medical Equipment costs. And which "Reform" law also prohibits Medicare from even LOOKING at any alternative cost basis (like, say, what other nations are paying).

https://www.quora.com/Why-are-prescription-drug-prices-so-high-in-the-U-S-compared-to-the-rest-of-the-world

This says that medicare is prohibited from bargaining for price in US.

Is this true?

So doctors can recommend pill A that's 100 times more expensive than pill B and tax payer will have to pay anyway. So pharmacies can just raise price very high.

Is this even true?

This seems to be a very strange system that's easily abused by one side.

Under free market, customers will pick cheaper drugs. Now, the pharmacy can raise price really high and the drugs get bought anyway. Of course the price of drugs go sky high.

Why would anyone do this?

  • Why the downvote? – user4951 Apr 15 '18 at 17:33
  • 4
    Your title and question are inaccurate and not even consistent with your quoted material. Medicare (a non-needs based program for the elderly) is not allowed to negotiate over drug prices. Medicaid (a means tested program for the poor) is allowed to and does aggressively negotiate drug prices (on average 23%) and other provider prices, which causes many providers to be unwilling to participate in Medicaid. See commonwealthfund.org/publications/blog/2016/may/… – ohwilleke Apr 16 '18 at 4:30
  • 4
    @J.Chang - while the subject of your question(s) is interesting, the form is not appropriate and thus you will receive downvotes / closevotes. This happens for many of your questions. Quick pieces of advice for this one: consider removing "This seems to be a very idiotic system." as it breaks "be nice policy". Stick to one single clear question. Multiple questions make the it hard to answer (too broad?). On the other hand questions like "is it (even) true"? are more fit to Skeptics , as politics.se deals more with "why" some fact (relevant sources are needed) rather than "is something true" – Alexei Apr 16 '18 at 4:54
  • I changed that. Replace medicaid with medicare. – user4951 Apr 16 '18 at 5:40
11

Medicaid is not prohibited from negotiating drug prices. Medicare technically is, but does so in a roundabout way.

More specifically, Medicaid (a government-provided program for low-income individuals) doesn't negotiate prices for drugs; it mandates them.

Medicaid produces a schedule of drugs that it will pay for, and the maximum price it will pay for them (which it reviews every year). Drug companies who wish to sell to Medicaid recipients will only be reimbursed at the mandated price. The story is the same for health care providers. Medicaid also sets maximum prices for the coverages it provides, and will only reimburse providers for their services according to the schedule.

Participation in Medicaid is voluntary, so not all providers and drug companies accept it. The low reimbursement rates that Medicaid offers has led many providers and drug companies to not participate, leaving the ones that do to compete on volume rather than health care outcomes (which itself leads to other problems that are beyond the scope of the question).

Medicare on the other hand, is a supplementary insurance program for elderly and disabled people receiving Social Security benefits. Medicare coverage (which is much older than Medicaid and governed by a completely different set of laws) is provided by private insurers under a contract with the government. Medicare too creates a schedule of coverages and drug prices that it will pay for, but that negotiation is done with private insurance companies, not directly with providers. Elderly Medicare recipients often purchase private Medicare supplemental insurance which covers additional items that Medicare does not.

It is Medicare, not Medicaid, that is prohibited from negotiating drug prices. But technically it does negotiate drug prices -- it just does so in a roundabout way. As a result, drugs are cheaper under both programs, but less so than under the Medicaid program.

This New York Times article has additional details. It predates Obamacare implentation however, so the landscape has changed somewhat. According to the article, however, Medicaid drug prices are 45% lower and Medicare prices are 23% lower than they are for everyone else.

  • Consider appending "supplementary insurance program for the elderly" with the text "and disabled" since the latter number about 9 million. – agc Apr 16 '18 at 7:44
  • 2
    "Medicare coverage . . . is provided by private insurers under a contract with the government." While about 33% of beneficiaries are part of this system where insurance can negotiate, known as "Medicare Advantage", most Medicare beneficiaries receive benefits directly from the government agency involved which pays 106% of the "standard price" for prescription drugs without negotiation. Also, while Medicare is a supplement to Social Security, it is the primary health insurer for its beneficiaries, which is in turn supplemented by private supplemental health insurance plans. – ohwilleke Apr 16 '18 at 8:49
  • Can you say something about the "roundabout way" that Medicare negotiates? – Paul Johnson Sep 25 '18 at 17:25
  • @PaulJohnson; Because Medicare negotiates rates with private insurers to determine the reimbursement rates they will pay. Drug coverage is a feature of those plans. The insurer is trying to lower its own costs by negotiating favorable prices with drug manufacturers based on guaranteed demand. Or they're using their lower costs to get a better bargaining position with Medicare. Either way, there is a middleman negotiating the drug prices; Medicare isn't directly talking with the drug manufacturers. – Wes Sayeed Sep 25 '18 at 17:49
1

This is part of the Single Payer problem.

When a consumer becomes a monopoly purchaser it can, and will, force prices down and squeeze the profits of its suppliers because they have nowhere else to sell their product. Most advanced countries do this with their public Health Care.

US producers have lobbied congress and spent millions on advertising to prevent this happening in the USA. At the moment they have a plethora of buyers who do not have the clout individually to force prices down. If these buyers were amalgamated into one with massive power then prices would slide, profits would drop and the cost of US healthcare would start to cost what it does in the rest of the civilised world.

  • An answer should only address the question at hand. For site issues, write a comment or post on meta. – chirlu Apr 15 '18 at 19:25
  • @J. Chang, Down votes appear to be given on a whim. It's not always true but no reason has to be given. When you get five or six net downvotes your question will be closed. I've seen it happen even as I worked on an answer. – Aethelbald Apr 15 '18 at 20:05
  • Close votes are unrelated to upvotes/downvotes. A downvoted question can remain open, and an upvoted one can be closed. – chirlu Apr 15 '18 at 20:27
  • 3
    This does not answer the question. It merely advocates why single payer is better and then straw-mans the actual question away. – Wes Sayeed Apr 16 '18 at 5:50
  • Sounds more like Single Payer solution than problem. – curiousdannii Sep 26 '18 at 2:59
-1

Unfortunately it's both true and idiotic. Generally because of:

  1. Graft.

    • The legislators who wrote and voted for these laws were and are either sponsored by profiteers, or afraid of them.
    • Regulatory capture. Regulator jobs with power to help the public are given to appointees hired on the condition they do just the opposite.
    • Medical harm-doing. Many doctors and pharmacists are hungry for the rewards to be had by prescribing more expensive drugs.
  2. Propaganda. Every few elections the profiteers sponsor misleading articles, books, programs, and advertising campaigns which bewilder the public into thinking these bad laws are actually good laws.
  3. Miseducation. The lawyers who make the laws, the managers who run big pharma, and the doctors who prescribe the pharma are trained in expensive schools that teach a kind of token morality, (passed off as complete enough), whereby their chosen professions' wrongdoing is made somewhat obvious, but the knowledge of practical methods for righting such wrongdoing is neglected, enfeebling them so that reforms and remedies appear impractically strenuous. By the time the loans and mortgages are paid, (decades later perhaps), those wrongs are both personal habit and professional culture, and professions come to regard each other's token helping efforts as decent and magnanimous.

    The schools that taught the contented professionals have for decades accepted and continue to accept large donations from big pharma, and name buildings, chairs, and programs after their magnates. Big pharma even funds, and sometimes designs, FDA mandated continuing education for professionals.

  • It is not true; See the link in @ohwilleke's question comment and my answer as well. – Wes Sayeed Apr 16 '18 at 5:11
  • @WesSayeed, Thanks. I read your answer, but am not sure what noun the pronoun "it" refers to in "It is not true". Please clarify. – agc Apr 16 '18 at 8:02
  • The question has been edited since you answered it. At the time, the OP asked why Medicaid specifically couldn't negotiate for better prices, and your answer confirmed that they can't. But they can, so the "it" meant your opening statement (It's both true and idiotic). The OP has since updated his question to include both Medicare and Medicaid, so you're back to being right again on that count (about the truth part -- the idiotic part is subjective). – Wes Sayeed Apr 16 '18 at 8:13
  • “Many doctors and pharmacists are hungry for the rewards to be had by prescribing more expensive drugs” I’m probably going to lose faith in humanity if this gets backed up by citations, so I think I’ll just cover my ears and go “La la la not listening.” – Andrew Grimm Sep 26 '18 at 13:30
  • @AndrewGrimm, Maybe it's not so bad. Look up physicians you know, or who practice locally at OpenPaymentsData.CMS.gov. OK, maybe it is bad... – agc Sep 26 '18 at 20:10

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