Addressing high drug prices has become a key priority for American health policy. Both presidential candidates have discussed it, and congressional hearings on the subject have become fairly normal. The question, then, isn’t whether we’ll do something on drug pricing, but what that something will be.
On this front, the Center for American Progress (CAP) deserves some credit. Their recent drug price reform proposal takes a big step beyond the usual talking points about drug prices. The authors of the proposal envision a system of “binding arbitration” to mediate high drug prices. The basic idea is to find an alternative to national drug formularies (how most countries control drug prices) while still pushing down drug prices.
Here’s how it works:
The government is given authority to refer an approved drug to an approved organization for comparative effectiveness research (CER). Using this data, the government would negotiate with drug companies, with a goal of hitting a “sweet spot” of cost-effectiveness as determined by the CER organizations. If negotiations fail, a payer can request an arbitrator to essentially set the price based on the CER data.
The good
This idea moves past broad calls for Medicare to “negotiate” with drug companies without a formulary (which wouldn’t do very much). But it also stops short of full-blown price administration. Not all drugs would fall within the scope of this mechanism, and the fact that CER is outsourced to non-government organizations suggests that the “cost-effective” price will come from a private valuation, and will more closely reflect the appropriate social value of the drug.
Moreover, the proposal hits on an important oversight that exists in the current Medicare program. We’ve prohibited Medicare from refusing to cover ineffective or overly expensive treatments. That’s a bad idea both in terms of...
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Yevgeniy Feyman is an adjunct fellow at the Manhattan Institute and a senior research assistant at the Department of Health Policy and Management at the Harvard School of Public Health. Previously, he was MI's deputy director of health policy. Follow him on Twitter here.
This piece originally appeared in Forbes