A path to lower drug prices

White House budget director Mick Mulvaney has floated an idea to bring down drug prices that’s both promising and – if other Republicans can be persuaded to go along – bipartisan.

At a recent health care forum, Mulvaney proposed that drugmakers be required to pay rebates to the government on drugs sold to Medicare beneficiaries, as they do with drugs sold to Medicaid patients. The companies must rebate 23 percent of the average wholesale price of a drug, plus an extra percentage if the drug’s price has risen faster than overall inflation.

In an ideal world, the secretary of Health and Human Services would negotiate on behalf of the 41 million people enrolled in Medicare’s Part D prescription drug plan. That kind of purchasing power – accompanied by the right not to cover a drug it deems too expensive – would give the department great leverage. Unfortunately, Congress not only forbids such negotiation, it requires that Medicare pay for all medicines approved by the Food and Drug Administration.

President Donald Trump would like to negotiate, judging from past statements and tweets. But he has not actually called for it, and such is the political clout of the pharmaceutical industry that it is considered a nonstarter in a Republican-controlled Congress.

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Enter Mulvaney’s proposal to simply demand rebates – if not for all Medicare beneficiaries, at least for those with low incomes. Congress would have to change the law to allow Medicare to make such demands. Yet there is precedent: Before the Part D drug program was created in 2006, people who were eligible for both Medicaid and Medicare got the Medicaid rebates.

Returning to that system could save Medicare as much as $145 billion by 2026, according to the Congressional Budget Office. There are risks; pharmaceutical makers could be expected to push up some base drug prices, and the change could deprive them of money to spend on creating new drugs. Congress might want to consider a lower rebate for “dual-eligible” beneficiaries or otherwise soften the change.

But this is a reform that has been proposed repeatedly by Democratic lawmakers. With White House support, it could be the start of a bipartisan discussion about how to bring down the cost of prescription drugs.

Bloomberg View editorial.