Medicare Rebates: The Beginning of Reform?

Increasing prescription drug prices are affecting not just individual consumers but also federal and state governments. Rising costs mean that paying for prescription drugs takes up a larger share of the government’s health care budget, and this trend shows no sign of slowing down. To counter this, Director of the Office of Management and Budget Mick Mulvaney (pictured) is pondering a reform that could hopefully attract bipartisan support, lower the cost of drugs, and open the way for additional measures.

At a recent conference on health care at Stanford University, Mulvaney said that drug manufacturers should pay rebates to the federal government on drugs sold to Medicare enrollees, like they do with drugs sold to people on Medicaid. The companies have to rebate 23% of the drug’s average wholesale price, and an additional percentage if the drug’s price has risen faster than the rate of inflation. Given the recent spikes in drug prices, the government would likely get back a lot of money.

Mulvaney stated “we’ve actually floated that idea with the president” and commented that drug companies are getting a “tremendous giveaway” right now. Congress would have to alter the law to give Medicare the power to demand such rebates, and drug companies have already attacked this proposal as price-setting that will limit access and increase costs. Democratic representatives and senators have repeatedly called for limits on the prices Medicare pays for drugs. At the very least, they say, individuals who qualify for both Medicare and Medicaid should be allowed to get their drugs at lower Medicaid prices.

It is encouraging that the administration is seriously considering this. Estimates vary, but according to the Congressional Budget Office the measure could save the federal government up to $145 billion by 2026. Since much of the research and development leading to prescription drugs comes from the government, requiring Medicare rebates is only fair. The government invested time, effort, and money into these medicines and drug manufacturers should not engage in price gouging as a result.

If they would like to enact a bipartisan reform, the American people are eagerly waiting.