The Biden administration recently released a comprehensive plan to promote price competition in the drug market and ultimately make drug pricing more equitable and affordable.
The plan identifies a lack of competition as one of the key factors influencing soaring prescription drug prices and describes three principles aimed at addressing the problem.
The first is to support negotiation on prescription drug prices between healthcare providers and manufacturers and end unreasonable drug price hikes.
The second proposes strengthening supply chains in the prescription drug industry and promoting biosimilar (generic) alternatives to brand-name drugs.
The third principle aims to support innovation in the prescription drug industry, support public and private research, and ensure that market incentives foster innovation.
More tangibly, the plan will allow Medicare to negotiate drug prices with manufacturers. Furthermore, Medicare negotiators would provide a schedule of reasonable and fair prices for each prescription drug.
The Medicare Modernization Act makes it illegal for Medicare to negotiate drug prices directly, instead forcing it to go through pharmacy benefit managers to agree on drug prices.
Pharmaceutical lobby groups were, understandably, not thrilled by the announcement. The leader of the Pharmaceutical Research and Manufacturers of America called the plan misguided and pointed out its failure to address problems in the insurance industry.
While the plan has the potential to reduce the price of many prescription drugs, it ultimately depends on how it’s implemented. Critics fear that eventually drugs will not be priced according to how valuable they are.
Healthcare costs rose to 20% of consumer spending on average during the pandemic. This plan is one of several going back to the Trump administration that has tried to end exorbitant drug prices.