Medicare Drug Pricing

MEDICARE DRUG PRICING….For some reason, this has been “Democrats Are In A Fix Over Medicare” weekend, with nearly identical stories in the Wall Street Journal, the Washington Post, and the LA Times explaining that Democratic promises to allow Medicare to negotiate prescription drug prices are shaping up to be trickier than anyone thought. Oddly, though, none of the pieces really explains what the problem is. They just repeat complaints from the pharmaceutical industry that Medicare is so big that “negotiation” is tantamount to price controls, and that’s a bad thing.

And so it is. But there’s a fairly simple solution to this, one that only the Wall Street Journal even bothers to mention:

[An] approach Democrats could try would be requiring drug makers to give Medicare beneficiaries their lowest price, as companies must for Medicaid, the state-federal health-insurance program for the poor and disabled.

This, of course, is common practice in the business world, where large buyers routinely negotiate “most favorable pricing” clauses into their contracts. It also addresses the most infuriating aspect of current pharmaceutical policy: the bulk of the companies and the bulk of the R&D in the pharmaceutical industry are done in America, but for some reason consumers in every other country in the world get lower-priced drugs than Americans.

An MFP clause with appropriate exceptions takes care of this, and it’s something the federal government already knows how to do since Medicaid currently operates this way. It’s not price control, since pharmaceutical companies wouldn’t be required to supply drugs at any particular price, but if they did supply them at a price to anyone else ? or any other country ? then they’d also be required to offer the same deal to Uncle Sam. This is pretty standard practice when you’re the biggest buyer in an industry. Just ask Wal-Mart.

And if it turns out that giving Americans the Canadian/French/German/whatever price prevents pharmaceutical companies from making money, then they’ll have to raise prices in other countries. But that’s OK. There’s no reason American taxpayers should be subsidizing healthcare for the rest of the world, after all.