How Utah Could Save $150-$350 Million This Decade
State Savings with an Efficient
Medicare Prescription Drug Benefit
By Nicole Woo and Dean Baker
Center for Economic and Policy Research
Americans pay far higher prices for prescription drugs than do people in
other wealthy countries. This is true for the Medicare prescription drug
program also. The reason that other countries spend so much less on
drugs is that their governments negotiate prices with the pharmaceutical
industry. While they grant patent monopolies to the industry that prevent
competitors from selling the same drugs at lower prices, these
governments use their large market shares to prevent the drug companies
from charging exorbitant prices.
The United States government could adopt the same approach with
Medicare, which also provides a huge market, actually far larger than
many other countries. Medicare could use its market leverage to negotiate
the same, or even lower, prices as are paid by other wealthy nations. The
potential savings would be enormous.
Recently CEPR estimated that the federal government could save from
$230 billion to $541 billion over the next ten years if Congress and the
President were to enable Medicare to negotiate prescription drug prices,
as is done in other wealthy countries.
These estimates are based on the projection that the United States would
spend $883 per person onprescription drugs in 2012.
This is nearly twice as high as in other wealthy countries. For example, Canada spends a bit
over 70 cents for each dollar spent in the United States per person on
prescription drugs. The United Kingdom spends just under 40 cen
ts, and Denmark only about 35 cents.
State governments pay into the Medicare drug programas well, to cover a
portion of foregone drug costs for those beneficiaries who are dually-eligible for Medicaid and Medicare.
In the low savings case, where the United States spends as much on drugs as Canada, the cumulative savings
to state governments would be $31 billion. In the high saving case, where
we paid the same amount for our drugs as people in Denmark, the
savings to the states would be $73 billion.
This article contains a table which indicates how much each of the states could save if Medicare could negotiate drug prices, and the total for Utah during
the decade beginning this year would be $150 to $350 million. Is there another line item in the state budget where such a possible savings could be achieved?
Well, actually yes. If the state were to negotiate prices for drugs for Medicaid beneficiaries, as is done in virtually all other states, then Utah could save additional millions.
I actually attended some hearings about this very issue a few years ago, when legislation was proposed that would allow drug price negotiation in Utah's Medicaid program.
Politicians in both parties (yes, Democrats too) were unwilling to 'meddle' in the market for pharmaceuticals. They chose to let market forces rule, which is to say, they chose to
let Utah taxpayers continue to be gouged by pharmaceutical companies. The pretense of market forces is always a windfall for sellers. And when that occurs, you will always
find enormous political money at play, donated to the political class by the purveyors who stand to benefit from the windfall.
We have the best health care system money can buy. Too bad it benefits corporations instead of taxpayers and patients.
Dr. Joe Jarvis