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Drug price increases and price negotiations

Two interesting articles on drug pricing appeared in today’s California Healthline; one reporting drug manufacturers’ recent price increases, and the other noting the introduction of legislation authorizing Medicare to negotiate prices with drug companies.
Leaving aside the irony of juxtaposition (those CA Healthline editors know how to lay out a newsletter!), the rationales behind these related announcements is intriguing.
Price increases
According to one industry analyst, prices are going up because drug companies need to increase revenues to offset declines from other drugs going off patent and thus losing their high margins. Also, some feel that there will be downward pressure on drug prices after the Medicare prescription drug program goes into effect 1/1/2006.
Proposed legislation
As noted below, the Medicare Drug bill’s prohibition against CMS negotiation with drug companies for pricing has been contentious, to say the least. Outgoing Sec. Thompson has been rather blunt in his condemnation of the limitation. After all, every country in the EU and most of the rest of the world does negotiate with the manufacturers. However, there is some doubt whether the legalization of CMS’ negotiations with drug companies will have any material effect.
Nevertheless, expect this bill to get a lot of attention in the months to come, if for no other reason than the Democrats will use it to highlight perceived problems with the present Medicare program.

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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