Drug Prices Prompt Obama to Call for Medicare Bargaining Power

President Barack Obama said the government should negotiate lower prices for expensive new medicines such as Gilead Sciences Inc.’s hepatitis C treatment Harvoni, breaking a detente with the drug industry on the issue.

Spending under Medicare’s drug benefit, known as Part D, will grow 30 percent in 2016 to $98 billion, about four times the rate from a year before, according to Obama’s budget proposal released Monday. That’s driven in part by new medicines like Harvoni, which can cost $1,000 a day.

When Congress created the Medicare drug benefit in 2003, it specifically prohibited the government from negotiating prices with drugmakers. Obama maintained that position during debate over the 2010 Patient Protection and Affordable Care Act, when drugmakers supported the law.

“The administration is deeply concerned with the rapidly growing prices of specialty and brand name drugs,” Obama said in his budget. Allowing Medicare to negotiate prices for biotechnology and “high-cost drugs” would “help ensure access to and affordability of these treatments,” he said.

The budget attaches no specific cost savings to the proposal. A spokeswoman for the Office of Management and Budget, Emily Cain, didn’t immediately respond to an e-mail asking about the policy.

Presidential budget proposals are frequently ignored by Congress, even when the legislature is controlled by the president’s own party. While the document is the first step in negotiations over the government’s annual spending plan, it often serves more as a statement of ideals and priorities than a basis for policy.

$100,000 Drugs

Drugs with prices upward of $100,000 have historically been uncommon outside of medicines aimed at rare disorders, such as enzyme deficiencies or unusual tumors. Now such prices are spreading to more diseases.

Half of about 30 cancer drugs introduced since 2010 cost $10,000 a month or more, and all cost at least $5,000 a month, according to data compiled by Memorial Sloan Kettering Cancer Center in New York. Only four of 44 cancer drugs introduced in the 1990s cost more than $5,000 monthly.

Gilead sparked a backlash from commercial health insurers in December 2013 when it priced a new hepatitis C drug, Sovaldi, which offered better cure rates and fewer side effects, at $84,000 for a 12-week course of treatment. Since then, Gilead and AbbVie Inc. have raced to strike deals with insurers, exchanging price concessions for preferred coverage of their competing medicines.

‘Dead on Arrival’

While Republicans control both chambers of the legislature and almost certainly won’t take up the idea, the proposal will please Obama’s liberal supporters, said John Gorman, executive chairman of Gorman Health Group, a lobbying and consulting firm in Washington.

“Dead on arrival,” Gorman said of Obama’s proposal. “This is red meat for the left. They don’t have a lot of chops to throw to these folks.”

Robert Zirkelbach, a spokesman for the Pharmaceutical Research and Manufacturers of America, the drug industry’s Washington lobby group, didn’t immediately comment on the proposal.

Clare Krusing, a spokeswoman for America’s Health Insurance Plans, the insurance industry’s main lobby group, said in an e-mail that the group wouldn’t comment before seeing more details of the policy.

Obama proposed about $400 billion in cuts to government health spending in his budget, much of it in the form of recycled policies from past budgets that were never adopted by Congress. In one new proposal, he would spend $44 billion to change the way physicians are paid by Medicare and “promote participation in high-quality and efficient health care delivery systems.”

That policy would be offset with $30 billion in savings by encouraging doctors to treat people outside hospitals, which are generally more costly for Medicare than physicians’ offices.

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