How Medicare Negotiations Could Reduce Drug Prices

It is clear that Americans are paying too much for some prescription medications. The reasons are numerous and complicated. But now, at least one U.S. senator is calling on her colleagues to give Medicare the ability to negotiate prescription prices with pharmaceutical companies. She believes such power would help bring the cost of prescription medications down.

Let us say for the sake of argument that she is correct. Giving Medicare the ability to negotiate would not fix all that ails our prescription drug system, but it would help a good deal. Negotiations are a powerful thing to encourage companies in every sector to pay more attention to consumer needs.

Beholden to Pharmaceutical Companies

Medicare is by far the single largest payer in the healthcare sector. They pay the most bills in terms of volume and cost. So you would think that they would have the power to negotiate prices. They don’t. When it comes to prescription medications, they must take whatever price pharmaceutical companies demand. Medicare is essentially beholden to Big Pharma.

If a pharmaceutical company wants to charge $2,000 for a single pill, Medicare has no choice but to pay that amount. You could say the arrangement amounts to highway robbery and not be too far off. Unfortunately, Medicare being willing to pay such high prices only encourages private health insurance companies to pay the same. That makes prescription plans pretty useless for a lot of people.

Cheaper Canadian Drug Prices

Some consumers are so desperate to get affordable medication that they buy their drugs online from Canadian pharmacies. Despite being advised not to do so, they cannot dispute the lower prices they get from Canada. Why does the situation exist? Because Canadian drug prices are significantly lower than ours.

Canada’s healthcare system is a socialized system. As such, the government can dictate to pharmaceutical companies what they are going to pay. It has been suggested that we follow suit. However, the few benefits of socialized medicine are far outweighed by its negatives. Single payer is not an option here if we want our healthcare system to continue being world-class.

One way to encourage drug companies to lower their prices is to encourage people to buy their prescriptions from online sites like Canada Pharmacy. But that alone will not do it. We need systemic reform in terms of how government interacts with the system.

Negotiating Creates Competition

Forcing Medicare to take whatever price they can get is giving pharmaceutical companies license to charge whatever they want. Flip the script and things will change. Medicare can say to a pharmaceutical company that they are not willing to pay a certain price. The pharmaceutical company can then reduce the price or lose the business. It is up to them.

A good businessperson will take less than asking price instead of nothing at all. But to make this work, Medicare and private insurance companies would have to stick to their guns. The government would also have to streamline the approval process so that pharmaceutical companies do not have to spend tens of billions of dollars to get a new drug to market.

Will giving Medicare the power to negotiate really bring prescription drug prices down? It would, at least somewhat. Negotiating power isn’t the only fix our system needs, but it is one of the more important fixes. Here’s hoping the Senate will get its act together and give Medicare the ability to do what the VA and private insurance companies can do. When the nation’s single largest payer has the ability to flex its muscles, big Pharma will respond.