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Republican frontrunner Donald Trump has embraced a policy that liberals love: allowing Medicare to negotiate for drugs. He told a New Hampshire crowd that doing so could save "$300 billion per year."
"We don’t do it," Trump said. "Why? Because of the drug companies."
Democrats have tried to give Medicare this power since at least 2003, when Medicare Part D, which gives beneficiaries prescription drug benefits, passed. Hillary Clinton, Bernie Sanders, and President Barack Obama all agree with Trump that Medicare ought to have the authority to push back against drug companies that ask for really high prices.
Republicans have opposed such policies, saying that lower prices would leave drugmakers with less money for research — and leave Americans with less innovation in the pharmaceutical industry.
But Trump isn't like other Republicans. He talks a lot about how he isn't beholden to special interests because he is financing his own campaign. This isn't fully true — Trump does take outside donations alongside his own contribution — but voters like the rhetoric and the idea that he can't be bought. This Medicare proposal only builds on that narrative.
Drug prices in the United States are way higher than in other countries
Drug prices in the United States are way higher than in any other country. The same cancer medication called Gleevec that costs $989 in New Zealand or $2,697 in Britain costs, on average, $6,214 here.
There's nothing different about the Gleevec that we buy in the United States and the pills that New Zealanders or the British take — except that in the United States, we didn't ask the manufacturers for a discount.
In most other developed countries, the government sits down with drugmakers and haggles over how much they will pay. Each country uses different negotiating tactics. The UK, for example, runs its bargaining through the National Institute for Clinical Evaluation, typically known by its acronym, NICE.
The United States works differently. When Congress created Medicare's drug benefit in 2003, it directly barred the program from negotiating prices. Once a pharmaceutical company sets its price, the government-run plan that insures 49 million seniors is required to accept it.
"For Medicare, the sky is really the limit," said Jamie Love, who has studied drug pricing and directs the DC nonprofit Knowledge Ecology International.
Trump estimated that such a proposal would save "$300 billion a year," which looks to be a fair estimate for a decade but not his timeframe. A 2012 report from the Center for Economic and Policy Research estimated that negotiated drug prices would save Medicare between $230 and $541 billion over a decade.
Obama, Clinton, and Sanders all stand with Trump on this issue — but pharma is on the opposite side
The Obama administration's last budget proposed giving Medicare the authority to negotiate prices on "high-cost drugs," although it didn't offer specific definitions of what drugs would fall into that category.
Clinton has gone further, campaigning on a plan to allow Medicare to negotiate for all drugs. And Sanders introduced a bill last September that would give Medicare this authority, too — along with the ability to import cheaper drugs from Canada.
The pharmaceutical industry has repeatedly pushed back against these efforts, arguing that lower prices would just stifle innovation, as companies would have less money to put into research.
Patient advocates say drug companies could significantly reduce their prices while running similar margins to other parts of the health care sector. Pharmaceutical companies have the largest profit margins in the health care industry, hovering just above 20 percent. That's more than five times the margins that hospitals and health insurance plans typically run.
"How do we maintain insurance financing if everyone takes this pricing approach?" says John Rother, who runs the National Coalition on Health Care, which advocates for lower drug prices. "We end up sinking the ship. We want innovation, but to continue loading these high drug benefits onto premiums isn't going to work."
Trump might want to stand up to drug companies. Congress won't.
Trump has said that he wants to take on the drug companies — that he would be unafraid to do so, as he promises to not become beholden to large interest groups.
That might turn out to be true, or it might not. But it won't matter much; Congress has to sign off on this proposal, and over the past decade it has shown absolutely no interest in moving forward.
That Sanders bill to negotiate drug prices, for example, has accrued exactly one co-sponsor (if you're curious, it's Sen. Al Franken of Minnesota).
The pharmaceutical industry is a huge lobbying presence on Capitol Hill. Drug companies spent $179 million lobbying Congress in 2015, more than twice as much as hospitals used. When drug companies make donations, they tend to give more to Republicans than to Democrats — making the prospects of Medicare policy changing in a Republican-controlled Congress even dimmer.
For this particular policy issue, a Trump administration and a Sanders administration would end up looking similar to the Obama administration: a desire to change stymied by pushback from Congress, with no clear path forward in sight.
Correction: an earlier version of this article misidentified how long Trump said it would take Medicare to accrue $300 billion in savings with drug negotiating. It was a year.
