Let Medicare Tackle High Drug Costs

Volume matters.

Photographer: Krisztian Bocsi/Bloomberg

The rising cost of prescription drugs isn't quite the crisis it's made out to be, but it's still worth addressing. Hillary Clinton isn't alone in suggesting the most sensible way to do that.

First, about that crisis. Yes, the U.S. pays 40 percent more for drugs than other countries do, and last year those costs rose 12.6 percent. But the increase is expected to slow, and drugs still account for just 10 cents of every dollar Americans spend on health care.

QuickTake Access to Medicines

What has rightly made drug costs a political issue, however, are the astronomical prices of a few specialty medicines. Sovaldi, a cure for hepatitis C, costs $1,000 a pill -- or $84,000 for a 12-week course of treatment --compared with $10 a pill in Bangladesh. Avastin, a lung cancer treatment, costs $11,908 a month. Daraprim, which fights parasitic infections, this month jumped to $750 a pill, from $13.50. (The company that owns the drug backed down in the face of public pressure.)

The best strategy to push down such prices -- the one endorsed by Clinton and one of her rivals for the Democratic presidential nomination, Bernie Sanders -- is to give Medicare, which pays for 29 percent of all U.S. prescription drug purchases, the ability to negotiate prices with drugmakers.

That Medicare doesn't already do this is Congress's fault. In 2003, when lawmakers created the Medicare prescription drug benefit, they explicitly prohibited bargaining. Presumably, this was to maintain the support of drug companies, but it gives away great leverage that Medicare could use to keep drug prices in check.

Along with this bargaining power, the government needs better information on drug effectiveness. Clinton endorses this, too. An authoritative body, similar to those in other countries, should compare various medicines for the same condition. The Affordable Care Act created the Patient-Centered Outcomes Research Institute to address similar questions, but it is prohibited from considering the relative value of drugs.

Some medicines may be so unique and effective as to be worth buying at a high price. But both Medicare and private insurers need to know which ones they are.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.