Life Science Compliance Update

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March 17, 2017

Op-Ed in The Hill on Allowing Medicare to Directly Negotiate Drug Prices


Dr. Rafael Fonseca, a Chair of the Department of Medicine at the Mayo Clinic in Arizona and Distinguished Mayo Investigator, recently wrote an editorial in The Hill, a Washington, DC, based newspaper focused on politics in Congress.

In the editorial, Dr. Fonseca opined that allowing Medicare to directly negotiate drug prices, as has been advocated by a variety of voices (both in and out of the industry), would actually hurt seniors’ access to new drugs.

Dr. Fonseca uses the Veterans Affairs (VA) as an example of what happens when government programs are allowed to negotiated their own drug prices. Currently, the VA pharmacy benefits program negotiates drug prices and pays far less for drugs than many other providers. In order to contain costs, however, the program does not cover many of the newest, most effective treatments.

According to the editorial, many of those drugs that are not covered are “newly approved drugs with no substitutes available.” According to an August 2016 report by Xcenda consultants, only three of the 25 most innovative drugs were available in the VA drug formulary. Compare that to 11 Medicare Part D plans that covered all 25. The majority of Medicare plans covered 21 of the 25 drugs. 

Dr. Fonseca believes that popularity and the “will” of the public will continue to force through “doing something” on prescription drug prices. He believes that there are “three essential things that we must understand about drug costs and how we can address the challenge,” before taking such a risk:

  1. Innovative treatments are expensive to develop. While the cost of some prescription drugs can be high, consider that it takes an average of more than $2.5 billion to bring a drug to market, according to the Tufts Center for the Study of Drug Development. By allowing the marketing of drugs earlier in the approval process, speeding up approvals for competing compounds, and reducing the costs to bring new treatments to market, the FDA could allow for more price competition without harming innovative and access to effective treatments.
  2. Innovative drugs offset other healthcare costs. Medicine has changed dramatically for the better, and mostly because of the new drugs clinicians have in their toolbox. A 2012 Congressional Budget Office study estimated that for every one percent increase in medication utilization, overall Medicare program costs fell by one-fifth of a percent.

Since 1991, the nation's cancer death rate has dropped by 25 percent, according to a recent report by the American Cancer Society. Some cancers, like chronic myelogenous leukemia, are no longer a death sentence; metastatic melanoma, previously a death sentence, can now sometimes be controlled such as was done for President Carter. Hepatitis C can be cured with a short course of pills; and today the life expectancy of HIV patients is about the same as the general population. It is important to remember that today's drug treatments are, often, enormous advances in disease treatment. 

3. Price controls will kill innovation. The United States is the engine of innovation in healthcare, producing roughly half of the world's new drug treatments in the past decade. But the current proposals could threaten patient access and the development of future treatments. Health care economists John A. Vernon and Joseph A. Golec found that price controls imposed in the EU between 1986 and 2004 not only reduced R&D spending, they also "resulted in about fifty fewer new drugs and about seventeen hundred fewer scientists employed in the EU." Rather than feasting on the goose that lays the golden eggs, we should be looking for ways to grow more geese.


There is no denying that Medicare and other government-funded programs are facing a serious funding crisis and that changes to the programs are long overdue. However, it is important to review history and not make the same mistakes that have already been made in attempting to resolve the issue. Instead, Dr. Fonseca believes that “Medicare beneficiaries should have more freedom to choose the coverage and services that best meet their individual needs and preferences.”

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