Consumer Confidential: Drugmakers see disaster in Medicare negotiating prices. Don't listen to them

David Lazarus, Los Angeles Times on

Published in Business News

Eli Lilly reported $6.2 billion in profit last year. Merck reported $7.1 billion in profit.

Lilly's Ricks received almost $24 million in total compensation for 2020. Merck's Frazier received $22 million.

This is what happens when drug companies are allowed to charge as much as they want for life-saving medications, and when the single largest purchaser of pharmaceuticals — Medicare — has to pay whatever the industry demands.

Drug companies are happy to haggle individually with hundreds of private insurers. But the idea of staring down a government program that represents tens of millions of people is terrifying.

Simply put, you can't gouge patients when they band together to this degree. You can only bargain in good faith.

And that's not how the $500-billion U.S. drug industry is accustomed to doing business.


Scott Barkowski, a health economist at Clemson University, said it's easiest to understand the stakes if you imagine the drug market as a really big pie.

"If the government is given the ability to use its substantial control of medical care spending in negotiating prices, American consumers of healthcare will be able to take a larger portion of the pie," he told me.

"This does not necessarily make society better off, because the pie is the same size," Barkowski said. "But one may consider it a more fair split of the pie between consumers and producers."

He acknowledged, though, that drug companies are correct to worry that less revenue could mean less research into new products.


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