clock menu more-arrow no yes mobile

Filed under:

The budget deal made a change that's good for Medicaid — and bad for Martin Shkreli


You may hate Martin Shkreli, the greedy drug company executive who hiked the price of Daraprim more than 5,000 percent last month. But you should love how Shkreli sparked a national debate over price gouging that's finally led to legislative action.

Under this week's budget deal, which has passed Congress and which President Obama is expected to sign Monday, a Medicaid drug rebate requirement would be expanded to generic drugs. What this means: Companies that produce generic drugs must pay back the government if the price of their drugs grows faster than inflation.

It's good for the government — the Congressional Budget Office estimates the change would save Medicaid about $1 billion over 10 years. And even if a Medicaid drug rebate doesn't directly benefit most patients, it "could still serve as a valuable tool for state budgets and taxpayers, particularly as Medicaid covers more and more people with the Affordable Care Act's Medicaid expansion and as more states choose to expand Medicaid," the Committee for a Responsible Federal Budget wrote.

Democratic lawmakers had been trying to make this exact change for years, but before Shkreli's antics, they didn't have any momentum to do it. In May, Sen. Bernie Sanders and Rep. Elijah Cummings reintroduced legislation to expand Medicaid's drug rebate. It went nowhere until now.

"This is at least the first time in recent history" that a budget deal has sought to cap generic drug prices, says Loren Adler, the CRFB's research director. "And [it] very directly targets Daraprim-type malfeasance."

Even Shkreli can't argue with the plan to limit how guys like him set drug prices.

"I support that," he told Adler and me on Twitter.

Drug price hikes under scrutiny

The budget deal doesn't fix the core problem with price gouging in the drug market. Companies that make generic drugs still have few restrictions on how they set their prices, and Medicaid represents just a small fraction of overall drug company revenue.

But more changes may be coming for the generic drug market.

In the past month, three presidential candidates — Hillary Clinton, Sanders, and, most recently, Marco Rubio — have weighed in on Shkreli and explicitly called for drug-pricing reforms.

(The Rubio comments are especially noteworthy; as Bloomberg's Drew Armstrong and Sahil Kapur noted, Republicans don't typically criticize the drug industry.)

The topic was raised at this week's Republican debate, too.

Talking about a problem doesn't always lead to action, especially in Washington. But it's worth noting that this week, it finally did.