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Member Research & Reports

Member Research & Reports

George Mason: Collaborates with Harvard on The Path to Affordable Prescription Drug Prices is Here

Medicare often spends $3,590 for one person’s 30-day prescription—the net cost after applying any available rebates, and prices continue to rise.

Dr. Richard G. Frank of Harvard Medical School and Dr. Len M. Nichols of George Mason University’s College of Health and Human Services offer a perspective in the New England Journal of Medicine to balance prescription drug costs and incentives for innovation.

Drs. Frank and Nichols recommend two guiding principles: (1) targeting the right drugs and (2) establishing reference prices.  Medicare would begin negotiations on a drug price if it met at least one of two criteria: (1) little competition with high markups and (2) high levels of annual Medicare spending — more than $500 million.

The negotiations need three items for success. First, Medicare would need the power to penalize manufacturers if a reasonable price could not be obtained. Second, upper and lower limits for possible prices would be set in advance – using the dollars per quality-adjusted life-year (QALY) gained or a similar index. Third, a neutral third-party arbitrator would become involved if negotiations could not be reached between Medicare and a manufacturer.

These criteria are administratively feasible, and Medicare and drug manufacturers could reach voluntary agreements that balance power between buyers and manufacturers and preserve innovation. This would reduce the cost of prescription drugs for taxpayers and consumers and slow the fasted growing Medicare expense.

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