How Medicare Could Get Better Prices On Prescription Drugs

Abstract

Congress may reform drug pricing policies under Medicare Part D as part of a larger health reform effort. Currently, the "noninterference" provision prevents the government from negotiating drug prices on behalf of Medicare Part D prescription drug plans. Commonly considered reform proposals borrow ideas from Medicaid, either through returning dual eligibles to Medicaid drug pricing or by imposing mandatory rebates across the Part D population. We examine a menu of other options, including value-based pricing; expansion of generic and therapeutically equivalent substitution; increased formulary diversity; importation; and limited antitrust waivers. These latter options may reduce federal spending without direct government price negotiations.

Keywords: Drug costs, Medicare Part D, therapeutic substitution, drug importation