Obama Abandons Effort to Contain Medicare Drug Prices
Policy + Politics

Obama Abandons Effort to Contain Medicare Drug Prices

© Felix Ausin Ordonez / Reuters

President Obama has given up trying to combat rising Medicare costs for prescription drugs. He has abandoned a proposed pilot project that would have encouraged physicians to take cost into account in prescribing medicine to their patients.

The proposal unveiled last summer has been met with unrelenting attacks from the pharmaceutical industry, the medical profession and even some patient advocates concerned about doctors cutting corners in their treatment in order to save the government money. So it’s not surprising that with only a month remaining before he leaves office that Obama would see this as a losing cause and withdraw the plan on Thursday.

Related: How Big Pharma Lobbyists Keep Medicare Drug Prices High

However, the outgoing administration’s surrender on this point is a bad omen for efforts to combat steadily rising drug prices and to reduce incentives by doctors and other health care providers to order the most expensive brand drugs of drugs for treating patients. 

Mounting drug prices and widespread incidents of price gouging by manufacturers for drugs to treat cancer, the Hepatitis-C virus, diabetes and even allergic reactions to peanuts have prompted calls from consumer groups, Democratic and GOP lawmakers and even President-elect Donald Trump to crack down on drug companies and rein in government health care costs.

AARP, the major seniors’ advocacy group, issued a report this week showing that retail prices for 268 brand-name prescription drugs widely used by Medicare beneficiaries increased by an average of 15.5 percent last year. By contrast, the general inflation rate was 0.1 percent over the same period. For the average senior taking 4.5 prescription drugs per month, this translates into an average annual cost of therapy of $26,000, according to the report.

But precisely how to go about lowering prices remains an unanswered question – especially with the incoming Trump administration and congressional Republicans offering mixed signals as to how far they might go in restraining drug prices.  The Department of Health and Human Services caused an uproar in March by announcing a pilot program that would reduce physicians’ temptation to order up more expensive drugs and drive up their Medicare reimbursement payments.

Related: Will the US Government Step into Regulate Drug Prices?

Most doctors, of course, have their patients’ well-being in mind when they reach for a prescription pad to order the necessary drugs. However, under the existing system, Medicare pays doctors the average price of a drug they administer to patients in their offices plus six percent.

The Administration argued that the system provided physicians with an incentive to prescribe higher-cost drugs to drive up their income. HHS Secretary Sylvia Mathews Burwell’s proposal would have experimented with a five-year pilot program in which the six-percent add on would be reduced to just 2.5 percent, combined with a flat fee of $16.

Then, in a second phase, Medicare would attempt to somehow tie payment to a drug’s value to a patient. For instance, Medicare Part B might pay more for drugs that were thought to be more effective in treating or preventing a particular condition, while paying the same price for drugs thought to be similar from a therapeutic standpoint.

Many of the drugs in question that are used to treat various types of cancer, rheumatoid arthritis, serious eye disorders and other conditions are typically administered in a doctor’s office or hospital clinic, according to The New York Times. Medicare in most cases pays 80 percent of the cost, while patients are responsible for the other 20 percent.  Physicians, meanwhile, are reimbursed for the average cost of the drugs plus a six percent surcharge.

Related: How Mylan Gouged the Pentagon on the Cost of Its Drug Dispenser

Obama promoted the cost-saving proposal in a Journal of the American Medical Association article last summer and chided the pharmaceutical industry for opposing any change to drug pricing, “no matter how justifiable and modest, because they believe it threatens their profits.”

But the uproar was so great from the pharmaceutical companies and the medical profession – which accused the administration of interfering in the doctor-patient relationship and possibly endangering the lives of patients –that the administration had little choice but to back down.

The American Cancer Society, for instance, said the proposal didn’t protect cancer patients’ access to the lifesaving drugs they need and “focuses more on the potential for cost savings” than on how to preserve and enhance the quality of care.

Republican and Democratic members of the Senate Finance Committee raised strong objections to the plan, while two dozen House Democrats, including black and Hispanic lawmakers concerned about low-income residents, said the proposal would disrupt care for their constituents. House Minority Leader Nancy Pelosi (D-CA) was among a high profile list of the most liberal members of Congress who worked against the plan.

Related: Two Big Reasons Prescription Drug Prices Are So Much Higher in the US

Ben Wakana, a spokesman for the Centers for Medicare and Medicaid Services, said in a statement Friday that “After considering comments, CMS will not finalize the Medicare Part B Drug Payment Model during this Administration.” 

“The proposal was intended to test whether alternative drug payment structures would improve the quality of patient care and the value of Medicare drug spending,” he said. “While there was a great deal of support from some, a number of stakeholders expressed strong concerns about the Model.”