U.S. Government Should Negotiate Drug Prices, Adviser Group Says

(Bloomberg) -- The U.S. government should use its heft to negotiate lower prescription drug prices, according to a group of independent experts who advise the nation on science and medicine.

Congress should authorize the government to use its purchasing power to get better deals on drugs it buys through Medicare, the National Academies of Sciences, Engineering and Medicine said in a report Thursday. The group also suggested the U.S. discourage direct-to-consumer ads for prescription medications.

“Monitoring will be needed, but taking these steps should bring down the cost of prescription drugs while still enabling the continuing development of new drugs,” the advisers said in the 189-page report, called “Making Medicines Affordable: A National Imperative.”

The report will likely add fuel to a recurring debate in the U.S., where unlike most of the rest of the world the government doesn't directly regulate medicine prices and is prohibited from negotiating prices in the Medicare drug-benefit program for the elderly. Pharmaceutical lobbies have strongly resisted changes over the years. President Donald Trump threatened to force bidding wars early in his presidency, but hasn't taken any action so far.

The National Academies of Sciences, Engineering and Medicine blames high prices on America's convoluted drug-supply chain, including intermediaries that privately negotiate discounts on behalf of clients such as insurers and employers. Some drugmakers took advantage of government policies designed to promote innovation in order to protect their patents and block competition, the group also said.

‘Supremely Complex'

“The United States biopharmaceutical enterprise has evolved into a supremely complex amalgam of regulators, developers and manufacturers, retailers, insurers, wholesalers, physicians, employers offering benefits, and intermediaries including organizations referred to as pharmacy benefit managers,” according to the report. “Not surprisingly, the system is rife with potential conflicts of interest.”

The group, led by Norman Augustine, former chief executive officer of Lockheed Martin Corp., advised that federal regulators set up a system for better assessing the value of treatments and require more transparency.

The recommendation on price negotiation will likely feature prominently during a Senate health committee hearing on the report on Dec. 12. While Republicans have typically sided with the pharmaceutical industry and opposed the approach, Democrats have repeatedly pushed for it, including in legislation proposed this year.

Speaking at the Forbes Healthcare Summit on Thursday in New York, Seema Verma, the head of the Centers for Medicare and Medicaid Services, said the administration is focused on reducing beneficiary drug costs, particularly in Medicare. Echoing others in the administration, she said competition typically is good, and that the problems stem from “bad actors.”

“Where the issue is in drug pricing is where there are no competitors,” she said. “The market works very well when there are competitors.”

The administration is examining the idea of passing on manufacturer rebates in Medicare directly to beneficiaries, Verma said. That would lower the price for individuals, but not necessarily the total cost of the treatments. She wasn't asked specifically about negotiating prices in Medicare, which has about 55 million beneficiaries.

Read More: a QuickTake on why drugs cost less in the U.K. than in the U.S.

The advisers' report doesn't back a controversial proposal Democrats and some Republicans have supported that would allow Americans to import cheaper drugs from other countries. It's “not clear” how much the proposal would reduce drug prices, the group said.

Many of the proposals put forward have been brought up in medical and policy debates over years and would be an uphill battle with the pharmaceutical industry.

The Pharmaceutical Research and Manufacturers of America, a lobby group for drugmakers, has opposed allowing the government to become involved.

On Thursday PhRMA released a report examining the U.S. drug distribution system. It blamed insurers and benefit managers for failing to pass on negotiated drug discounts to patients. They often keep the discounts, leading to higher out-of-pocket costs for patients whose co-pays and deductibles based on the higher, non-negotiated price, PhRMA said.

“Changes made within the current system, even though those changes will be demanding, are likely to better serve the nation,” the advisers wrote in their report. “Simply stated, bitter pills are sometimes necessary for providers as well as for consumers.”

--With assistance from Zachary Tracer

To contact the reporter on this story: Anna Edney in Washington at aedney@bloomberg.net.

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Cecile Daurat, Timothy Annett

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