Congress stymied over Medicare drug discount negotiations

May 1, 2007

WASHINGTON, D.C.-Legislation permitting federal government negotiation of Medicare drug discounts has stalled in the Senate, partly due to disputes over the measure's potential for savings. A coalition led by Sen. Debbie Stabenow (D-Mich.) claimed that government negotiation of Medicare drug prices would save patients and taxpayers $30 billion a year. That number assumes such a change would yield 40% drug price reductions to match rates obtained by the Department of Veterans Affairs health program.

WASHINGTON, D.C.-Legislation permitting federal government negotiation of Medicare drug discounts has stalled in the Senate, partly due to disputes over the measure's potential for savings. A coalition led by Sen. Debbie Stabenow (D-Mich.) claimed that government negotiation of Medicare drug prices would save patients and taxpayers $30 billion a year. That number assumes such a change would yield 40% drug price reductions to match rates obtained by the Department of Veterans Affairs health program.

However, a PricewaterhouseCoopers analysis for the Pharmaceutical Care Management Assn. (PCMA) predicted that public disclosure of rebates and discounts negotiated by PBMs and drug manufacturers could result in a $67 billion increase in Medicare drug costs over 10 years. Much of that cost would come from proposals to make Medicare drug plans liable for rising Medicare costs, as well as from reductions in discounts that would arise from public disclosure of private deals.

Meanwhile, the Congressional Budget Office (CBO) maintained that dropping the "noninterference clause," which currently prevents Medicare from "interfering" in drug plan deals for rebates and discounts, would save Medicare very little money. Without authority to establish a central formulary or limit drug coverage, the government would have little leverage to negotiate lower prices than those obtained by Medicare drug plans. And CBO is skeptical that any legislation by itself would compel Medicare officials to aggressively pursue price negations.