Over recent years, presidential candidates from both parties have proposed caps on Medicare payments for newly-developed prescription drugs. Yet, such caps would have eliminated the incentives to invest in many new drugs, without tackling the fundamental cause of rising drug costs felt primarily by seniors.
The recent proposal by congressional Democrats takes a better approach. It would reform Medicare’s Part D benefit by capping seniors’ exposure to catastrophic out-of-pocket costs, strengthen the incentive for drug plans to negotiate lower prices from manufacturers, and only cap prices for older drugs where competition is inadequate. The proposed reform is for the most part well-designed, but its price caps on older drugs need stronger safeguards to ensure they do not erode patent protections that are necessary to reward the development of new drugs.
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