Negotiating Drug Prices
By Arnold Kling
A chain pharmacy usually dispenses prescriptions as written by the physician for brand-name drugs under patent protection; so even though a chain pharmacy may buy a large volume of brand-name drugs under patent protection, it generally cannot negotiate prices for them that are low compared with the prices negotiated by purchasers with more choice. In contrast, a health plan can choose to cover only one or two brand-name drugs from a set of drugs that are considered to be therapeutic substitutes; therefore, a health plan can negotiate lower prices from manufacturers (in the form of rebates) by buying a large volume of the brand-name drugs of the plan’s choice.
The point is that you are only in a position to demand a lower price for a drug if you can threaten to buy a different drug instead.
The report itself drew no inferences from this, but there are news stories saying that the CBO just trashed the Democrats proposal. I don’t think the Dems want to have Medicare threaten to take grandma’s favorite drug off the Medicare list of approved drugs. Put that together with the CBO analysis, and you conclude that without that threat Medicare will have no negotiating power.
If the drug companies buy this analysis, then they should just lay down and let the Dems have their bill. Somehow, I doubt that they’ll approach it that way…