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Federal government and pharma pricing

Legislation has been introduced in the US Senate that would prevent pharmaceutical companies from including the cost of advertising in calculating drug prices for governmental programs. Moreover, the legislation also requires that the HHS and Veterans Affairs Departments “negotiate reduced prices on drugs that are advertised directly to consumers in other programs” (quote from California HealthLine).
The legislation is sponsored by John Sununu (R NH) and Ron Wyden (D OR), senators that are not exactly on the same philosophical plane on many other issues.
According to Wyden, since companies’ advertising expenses are already a tax deduction, “[t]axpayers shouldn’t have to further subsidize the drug companies’ marketing efforts through Medicare and Medicaid.”
My sense is this is a backdoor way for Congress to encourage HHS to negotiate prices with pharma. The Medicare Reform Act specifically prohibits HHS from negotiating prices, a situation that rankles many legislators and taxpayers. Of course, Sununu et al are quick to claim this is not the intent. Regardless, it is a clear indication that some in Congress are looking for creative ways to reduce the cost of pharmaceuticals to the government, and taxpayers as well. With the present budget deficit and focus on same, look for this motivation to result in some meaningful price discussions.
What does this mean to you?
Watch pharma pricing carefully; due to the “flexible” nature of Average Wholesale Price (AWP), (sometimes referred to as “Ain’t What’s Paid”) price reductions in one sector can often be offset by increases to other payers. And as we have noted before, price is but one component of the pharma cost equation of price X utilization X frequency = total cost.

Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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