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This Is Why the U.S. Needs Drug-Pricing Reform

Democrats must deliver on drug-pricing reform while they still hold the White House and Congress.

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Opinions expressed by Entrepreneur contributors are their own.

One of the most significant components of President Biden’s Build Back Better plan is a provision that seeks to reduce the cost of prescription drugs. Championed by a senator from my home state, U.S. Senator Ron Wyden (D-OR), currently Chairman of the Senate Finance Committee, this provision would allow Medicare to negotiate drug prices directly with manufacturers. This change will yield positive results for patients and the entire U.S. economy — if Democrats can get it done. 

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A straightforward problem that costs lives

The problem is straightforward. Prescription drugs are the mainstay for managing chronic diseases like diabetes, cancer, cardiovascular disease and arthritis. Approximately 85% of older adults have at least one chronic health condition, and 60% have at least two chronic health conditions, the CDC reports. For these people, prescription drugs are not a luxury: They are a matter of life and death, and even a small increase in the cost can be fatal. According to a 2021 study conducted by the National Bureau of Economic Research, a simple $10 dollar increase in the cost of medications led to a 23% drop in drug consumption — or a 33% increase in mortality. 

Related: 7 Ways to Manage Medicare Drug Costs - NerdWallet

Yet, in the U.S. today, there are virtually no constraints on what price a drug company can charge. As a result, the cost for the world's 20 top-selling medicines is, on average, three times higher for consumers in the U.S. than in Britain. Not only does this unjustifiable cost differential jeopardize the lives and well-being of millions of older Americans, but it is also a serious drain on the public treasury. Last year, the federal government spent $182 billion on prescription drugs for the Medicare program and another $68.5 billion in Medicaid. That is $250.5 billion. We are paying three times more than we should be for these drugs, enriching the profits of huge corporations and financing this largess from the public treasury at a time when the national debt is approaching $29 trillion. 

The path forward: prices based on volume

The proposal to address this problem is equally straightforward. Allow the federal government to do what large private sector businesses do every day: negotiate prices based on volume. Today, there are 61.2 million Medicare beneficiaries, and that figure will grow to over 80 million by 2030. That means a huge market for prescription drugs. The pharmaceutical industry recognized this, and when Congress passed the Medicare Prescription Drug Act in 2003 — authorizing Medicare coverage of outpatient prescription drugs — the industry was able to add a “noninterference clause,” which prohibits the government from directly negotiating drug prices with manufacturers. 

This clause distorts the market by putting all the power in the hands of manufacturers to set whatever prices they wish. This results in driving down the disposable income for the individuals who have to pay these inflated prices, increasing profits for drug companies and their shareholders and widening income inequality. Congress is still negotiating a bill that will address the full size and scope of the human infrastructure problems facing our country today, and that could include sensible drug-pricing reforms, like Medicare negotiation, as key pieces of that bill. 

Related: Does Medicare Cover Addiction Treatment?

Democrats, who now control the House, Senate and White House, have both the opportunity and responsibility to address this long-standing problem that threatens the lives of millions of vulnerable Americans, harms the economy, widens income inequality, contributes to the national debt and undermines our ability to invest in helping struggling children and families. All Democrats, including my home delegation, must stand united with healthcare consumers and ensure passage of this vital legislation. 

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