I was reading the recent Forbes article by Matthew Herper, “On ’60 Minutes,’ Donald Trump Accidentally Proposes Radical Reform Of U.S. Healthcare,” when I came upon a startling sentence that I will reveal in a moment. The article covered how on 60 Minutes, Donald Trump recently laid out his vision for what the U.S. healthcare system would look like if he had an opportunity, as president, to lead the charge for repeal and replacement of the Patient Protection and Affordable Care Act. According to the Forbes report, here is how he described it:

“It’s going to be a private plan and people are going to be able to go out and negotiate great plans with lots of different competition with lots of competitors with great companies, and they can have their doctors, they can have plans, they can have everything.”

Notwithstanding that this response makes no sense, in response to how he would live up to his pledge to ensure that all Americans have access to healthcare and that the cost would be lower, Mr. Trump said he’d “make a deal with existing hospitals to take care of people.”

It is astonishing that Mr. Trump, who has been loath to reveal many of his plans for his presidency, discussed his thinking so freely – and that Forbes took him to task on a number of points (you can read the article at the link below). But this story is not about Mr. Trump at all. It’s about the high and rapidly rising costs of generic and orphan drugs (i.e. drugs used to treat rare diseases). And no, I’m not going to blame that on Mr. Trump and his grandiose-but-mixed-up policy. The Forbes article noted that, according to their reading of the Trump plan, it would require centralized federal control of healthcare in order to negotiate with an entire industry – basically, a federalized system. And in pointing out one of the many barriers to these proposed negotiations, Herper wrote:

“Medicare can’t negotiate lower prices on drugs, even if a company prices a treatment at an exorbitant level.”

That is the startling statement that caught my attention and which I think reveals better than any other explanation the reason for rising drug costs – particularly in the generic and orphan drug classes.

In recent years, we have read time and again about mergers and acquisitions consolidating the generic drug industry and destroying competition, with some companies getting de facto monopolies on the production of certain common generics, thereafter promptly raising the price through the ceiling.

Here’s the problem: Medicare Part D drug plans are prohibited from negotiating prices by law. Big pharma supported the law that created Medicare Part D because it protected drug company profits. By giving them a massive new market – and there being no alternative to these drugs – the owners of the patents and the manufacturers were free to charge what they wanted, and Medicare has been obligated to pay their price, even if it’s raised to “an exorbitant level.”

Medicare HMO and PPO plans do, however, receive “rebates” from the pharmaceutical companies. But that doesn’t necessarily help their members. In fact, Aetna, in its Medicare HMO and PPO disclosures, informs us that “many drugs, including many of those listed on the preferred drug list, are subject to rebate arrangements between Aetna and the manufacturer of the drugs. Such rebates are not reflected in and do not reduce the amount you pay to your pharmacy for a prescription drug.”

Say what? The plan gets a rebate but the enrollee pays full freight? That’s what Aetna said.

I believe that Medicare Part D plans are the principal target, but consumers, who have to pay these inflated prices out of their pockets or have important medications they need unavailable, are just collateral damage for these mega drug companies. Their privileged position – the companies being able to set their prices and their biggest customer being prevented from negotiating it – is a direct result of the power of the industry’s massive lobbying efforts, huge campaign contributions, and exertion of political pressure on Congress.

The next time you pick up a prescription and are shocked at the rising cost, realize that prices are high because the Congress that prohibited Medicare from negotiating drug prices wanted it that way.

Read the Forbes/Pharma & Healthcare story.

About the Author

Dr. Steven Meyerson is a geriatrician and consultant in Medicare compliance and case management. He has served as physician advisor and Medicare compliance educator. Dr. Meyerson received the 2014 Distinguished Achievement Award from the American College of Physician Advisors and is a member of the Board of Directors that group. 

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