So I was reading a Wonkblog article under the headline "Obama budget is a disaster for drugmakers" and was wondering why Obama was trying to be half-pregnant in his effort to go after Big Pharma, i.e. why he wasn't letting Medicare negotiate drug prices, the holy grail for progressive reforms to Medicare Part D. But what I didn't realize was that there's a policy, which Obama has embraced, that the drug makers hate even more than letting Medicare negotiate: Having Medicaid rebates that automatically make Medicare buy drugs at Medicaid prices, which are automatically set to the lowest possible value in the industry. So it would be like have Medicare negotiate but with that negotiation consistently yielding the lowest possible value for the drugs being bought.
So as they explain at Wonkblog:
Right now, Medicaid gets a great deal on drugs: Pharmaceutical companies must sell prescriptions to the entitlement program at the very best price they offer private insurance plans, or 23.1 percent lower than the average price.I'm just surprised that progressives have completely overlooked this policy while embracing letting Medicare negotiate drug prices. Now the latter is obviously good policy, but a)it doesn't give seniors as good of a deal as Obama's plan and b)because of that it doesn't save as much money. Obviously, the pharmaceutical industry finds this policy draconian and opposes it furiously, so it has no chance in hell of becoming law. As is usually the case with Obama and republicans, the only policies that have a chance of passing are the worst ones, i.e. the lowest common denominator.
This has led to big discounts for the program: The Office of the Inspector General at Health and Human Services estimates that the provision has reduced Medicaid spending on drugs by 45 percent.
Medicare Part D, which covers prescriptions for seniors, does have the power to negotiate with drug companies. But that same OIG report found that that tends to lead to smaller discounts: 19 percent vs. the 45 percent reduction that Medicaid receives.