US pays more for drugs than other nations, would negotiate down with Medicare for All

“U.S. payers are currently charged substantially more for drugs than payers in other countries (Danzon and Furukawa, 2008), which may be partially attributable to the fact that Medicare is currently barred from negotiating drug prices on behalf of enrollees. Within the United States, drug prices vary by payer; currently, drugs obtained by the Medicaid program are governed by a “best price” rule that requires manufactures to sell drugs to the program at the lowest price offered to any payer (Baghdadi, 2017). Given this drug pricing rule, Medicaid drug prices have been estimated to be roughly 66 percent of Medicare prices and 54 percent of commercial prices (Roehrig, 2018; Gagnon and Wolfe, 2015; Government Accountability Office, 2014; Cook, 2013).

Consistent with our previous research on the NYHA, we assume that under a Medicare for All plan, the government would be able to negotiate drug and device prices that are 10 percent below current Medicare prices in the initial year; we do not assume they would be able to be reduced further, such as to the same level as current prices under the Medicaid program. For reference, estimates from a Congressional Budget Office analysis of a budget option for Medicare Part D Low-Income Subsidy rebates, which would be similar to the Medicaid 23.1 percent rebates, indicate that spending would decrease by 22 percent in 2019 (Congressional Budget Office, 2016; Congressional Budget Office, 2017). Although, it is possible that, over time, negotiated prices could reach levels comparable with those currently paid by Medicaid (or to levels found in other Organisation for Economic Cooperation and Development [OECD] countries), we assume it would be difficult for a national single-payer system to reach Medicaid price levels for the entire U.S. population initially.”

Source: Liu, Jodi L. and Christine Eibner, National Health Spending Estimates Under Medicare for All. Santa Monica, CA: RAND Corporation, 2019. https://www.rand.org/pubs/research_reports/RR3106.html.

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