Drug competition and prices for Medicare

From David S. Hilzenrath in yesterday’s Washington Post:

Beginning next year, at the expense of pharmaceutical companies, millions of senior citizens in the Medicare coverage gap known as the “doughnut hole” will receive 50 percent discounts off the price of brand-name prescription drugs. […]

“There is legitimate concern that some manufacturers will steeply increase the price of drugs in order to offset the cost of the discount to the manufacturers at the expense of both consumers and the Medicare program itself,” the Center for Medicare Advocacy and the Medicare Rights Center said in a letter to the agency that oversees the federal health insurance program. […]

Officials at the agency and at the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry group, said […] [c]ompetition in the drug market will serve as a restraint.

One “feature” of the Medicare prescription drug benefit that dramatically reduces drug price competition is that Part D plan formularies are required to include “all or substantially all” drugs within six classes and at least two in all other classes. In other words, plans have far less leverage in negotiating with drug manufacturers than they might otherwise have if they had more flexibility with respect to which drugs are included or excluded in formularies.

There may be price competition for drugs, but there could be a whole lot more.

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