Federal drug purchase program could save billions
WWhen Amazon, Berkshire Hathaway, and JPMorgan announced the creation of a new healthcare company in 2018, it raised the possibility of the purchasing power such a company could have. Although the company has since been dissolved, imagine the purchasing power the federal government could wield to purchase drugs if all the federal agencies that purchase prescription drugs were combined into one purchasing group.
Today, only the Veterans Administration, Department of Defense, Public Health Service and Coast Guard – known collectively as the Big Four – are maximizing their purchasing power to help save hundreds of millions of dollars. dollars per year. The Veterans Health Care Act of 1992 capped the prices of drug manufacturers to charge the Big Four. They use a national drug formulary (pre-approved list of drugs) and refer patients to cheaper drugs while purchasing large volumes of drugs, thereby increasing their purchasing power from pharmaceutical manufacturers.
Medicare and a host of other federal agencies are prohibited by law from accessing this type of purchasing power.
President Biden’s “Build Back Better” plan would allow Medicare to negotiate directly with drug manufacturers. While this is an important step, it is a bad step – another example of political appeasement refusing to address the important issue of high drug prices in all federal agencies, not just Medicare.
While prescription drug prices have been the focus of many political campaigns and coincident hollow rhetoric, Congress has an opportunity to build on what the Big Four have accomplished: cutting costs through negotiations difficult. And while increased politicization has led some pharmaceutical manufacturers and others to grapple with costs, others have refused.
There is an opportunity to change the purchasing paradigm and extend the power of the big four to all federal agencies.
The first step is to eliminate the fragmentation of procurement by creating a single federal prescription drug contracting program. Establishing a federal prescription drug purchase contract would consolidate purchasing power through a single federal agency. This contract would include Medicare, Medicaid, Veterans Administration, Department of Defense, Public Health Service, Coast Guard, Bureau of Prisons, Peace Corps, Immigration and Customs Enforcement, National Aeronautics and Space Administration, Department of State, Federal Employee Health Benefits Plan, and others. There is strength in unity and a confederation of these agencies would provide drug manufacturers with a formidable adversary at the negotiating table.
The second step to maximizing savings for government and patients is to implement a national prescription drug formulary for government funded health care programs. Rather than each federal program having its own formulary, the implementation of a national prescription drug formulary established by a panel of independent experts:
- Eliminates the need for multiple Pharmacy Benefit Managers (PBMs) and wholesalers to promote drugs that would give the best drug discounts and lower additional fees charged by middlemen
- Focus on cost, effectiveness and efficacy and cost – not on which drug will give the best discount
- Increase savings from federal prescription drug purchase contract through tough negotiations with pharmaceutical manufacturers for generic, branded, specialty and genetic therapies.
The third step allows state Medicaid programs – managed through state and federal partnerships – to negotiate and overcome the federal prescription drug purchase contract through its direct negotiations and seek even more advantageous prices. The creativity of the state’s Medicaid prescription drug programs should never be handcuffed by a federal agency.
The fourth step in creating the Federal Prescription Drug Purchase Agreement eliminates the need for the Best Price Medicaid Act. Instead, it would require drugmakers to charge the Medicaid program the lowest or ‘best’ price they negotiate with any other buyer and send a rebate check to each state’s Medicaid department, so that ‘they also receive the same “best” price. If the private sector can negotiate greater savings than the federal government’s new plan could achieve, nothing should stand in the way and the government should ask how and why. In addition, if a state Medicaid program achieves a better price lower than the federal prescription drug purchase contract, the federal program would have the option of claiming that price to further reduce its costs.
The fifth step involves establishing an expert group to transparently guide the government’s national drug formulary. These experts would serve at the discretion of the president, ensuring that each president has the power to nominate their choices without conflicting with a previous administration.
Why is such a panel necessary? While various federal agencies have valuable expertise in the area of prescription drugs, the creation of an expert group, called the Federal Committee on Pharmacy and Therapeutics, would guide the federal government on efficacy and effectiveness. In other words, where there are more than one generic drug, the committee would recommend two and exclude the need for brand name drugs. And when new drugs hit the market, the Federal Pharmacy and Therapeutics Committee would recommend when and if those drugs should be added to the national formulary. With the growth of biosimilars, this can be another area of savings.
Sixth, the federal prescription drug purchase contract would engage a prescription drug wholesaler and a pharmacy benefits manager, eliminating multiple contracts with different wholesalers and PBMs.
Seventh, transparency would be the basis of the federal prescription drug purchase contract. The value of the initial pricing would require the removal of all discounts, downstream promotional revenue, and full disclosure of fees paid to intermediaries. This unadorned data and information could be shared with state Medicaid programs. This would allow state Medicaid programs to have greater bargaining power to seek the lowest net cost of prescription drugs.
Consolidating all federal programs into a single pharmaceutical purchasing group could result in significant savings. And with the addition of a National Prescription Drug Formulary and a Panel of Eminent Prescription Drug Effectiveness Experts advising the Federal Prescription Drug Procurement Contracts Agency, all parallel offers or other undisclosed inducements that may have been used to help a specific drug gain access to a formulary would be removed or disclosed.
Removing complacency from Congress and the White House can result in significant savings on what the country spends on pharmaceuticals. And it takes authority away from the staff of federal agency departments and consolidates them into a federal agency and staff. Most importantly, increased transparency helps the public better understand why a specific drug is on the National Prescription Drug List instead of another.
Efficiency in negotiating contracts and the effectiveness of the best drugs, both branded and generic, will help demonstrate how the purchasing power of government can deliver greater savings to taxpayers, eliminate fraud, waste and abuse, and build on the success of the Veterans Administration and the Department of Defense in containing the cost of prescription drugs.
The need is great. The time for real action, no more rhetoric, is now.
Jeffrey R. Lewis is the President and CEO of Legacy Health Endowment, based in California. The opinions expressed here are his own.