\n\n“Until 2003, Medicare covered most hospital and doctor visits for the elderly, but it did not cover the ever-growing costs of prescription medications. Former President George W. Bush changed that when he signed a law adding prescription drug coverage to Medicare.<\/p>\n\n\n\n
But there was a catch.<\/p>\n\n\n\n
At drug companies\u2019 behest, the Republican-controlled Congress banned Medicare from using its market power to drive down drug prices. The prohibition was controversial at the time \u2014 Nancy Pelosi, then the House Minority Leader, called<\/a> it \u201cunconscionable.\u201d Critics saw the prohibition as the government\u2019s abandonment of the single most effective tool for restraining drug costs.<\/p>\n\n\n\n In the years since, the prices for brand-name prescription drugs have skyrocketed<\/a>, and the prohibition on negotiation has become even more controversial. Higher prices mean larger co-payments<\/a> for drugs for some seniors, many of whom live on fixed incomes. It\u2019s also a major budgetary problem: From 2018 to 2021, Medicare spending on the 10 top-selling drugs jumped from $22 billion to $48 billion<\/a>, far outpacing the program\u2019s overall cost growth over the same period.<\/p>\n\n\n\n That\u2019s why, in last year\u2019s Inflation Reduction Act, President Joe Biden and congressional Democrats partly undid the prohibition. Under the law, Medicare will pay a much-reduced price for drugs that consume a disproportionate share of Medicare spending, ultimately saving an estimated $100 billion<\/a> over the next ten years.”<\/p>\n\n\n\n …<\/p>\n\n\n\n “Although the Inflation Reduction Act marks the most substantial change in how we pay for drugs in two decades, it doesn\u2019t change the fact that drug companies will still be rewarded for bringing a drug to market and selling as much of it as they can \u2014 whether or not the drug works very well.<\/p>\n\n\n\n Medicare could pave the way toward smarter drug development by paying more for more effective drugs and less for drugs that are less effective. That would send the right signals about where drug companies should target their research investments. The Inflation Reduction Act isn\u2019t that law. We\u2019ll spend less on prescription drugs because of it, and that\u2019s all to the good, but we won\u2019t be spending any smarter.”<\/p>\n\n\n\n …<\/p>\n\n\n\n “Some drugs are (literally) worth their weight in gold. Think of Sovaldi and Harvoni, which were approved a decade ago and can cure Hepatitis C, a deadly viral disease that once afflicted between 3 and 5 million<\/a> Americans. Paying a lot for cures encourages drug companies to invest in developing drugs with curative potential.<\/p>\n\n\n\n But most drugs aren\u2019t cures. Drug companies generally earn more, in fact, on drugs that patients take over an extended period. That helps explain why fully one quarter of all drug approvals<\/a> are for cancer drugs. They\u2019re really profitable, even though they often don\u2019t work very well.”<\/p>\n\n\n\n …<\/p>\n\n\n\n “How we pay for drugs, in short, sends the wrong signals to the market about the kind of innovation we value. The good news is we can fix that. As law professor Rachel Sachs has argued<\/a>, Medicare and Medicaid (and to some extent private insurers as well) are required by law to cover all <\/em>FDA-approved drugs, whatever their value to human health. That linkage can be severed. We could give CMS the authority not only to drive down the prices of the most expensive drugs, as the IRA does, but also give it the power to pay less for, or even exclude coverage for, drugs of marginal efficacy.<\/p>\n\n\n\n