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Is Any Industry’s Interests More at Odds With Those of Taxpayers?

Just hours after President Barack Obama revived a proposal to require drugmakers to provide Medicare with the same sort of discounts that are given to Medicaid, a new analysis claims taxpayers could save even more money if the US government directly negotiates prescription drug prices with the pharmaceutical industry.

In his State of the Union address this week, Obama called for reforming Medicare but was not specific. However, the U.S. Department of Health & Human Services Office of the Inspector General estimates that Medicare Part D gets a 19 percent discount on drugs, compared with a 45 percent discount for Medicaid. By realigning the discounts, the White House estimates about $156 billion could be saved over a decade.

However, the federal government could save anywhere from $230 billion to $541 billion over the next 10 years if the government were to negotiate Medicare drug prices directly with the pharmaceutical industry. And state governments could save from $31 billion to $72 billion, while consumers could save from $48 billion to $112 billion over the same period, according to the analysis by the Center for Economic and Policy Research.

Savings like those, of course, would mean a less-profitable pharmaceutical industry – including Pfizer (PFE), Novartis (NVS), Merck (MRK), GlaxoSmithKline (GSK), Sanofi (SNY) and Eli Lilly (LLY) -- and stock prices would be expected to fall substantially.

PFE Market Cap Chart

PFE Market Cap data by YCharts

“It’s ridiculous for Medicare to be paying drug companies two and three times as much money for drugs as other countries at a time when we are cutting essential programs,” says Dean Baker, co-director of CEPR, which is a nonprofit think tank, and author of the analysis, in a statement. “This fix alone would go far towards hitting anyone’s deficit target.”

The rationale for the projected savings is that other countries that negotiate prescription drug prices directly with drugmakers have lower costs. For instance, the CEPR cites per capita spending in Canada, where costs per person are 72 percent lower than in the US. Similarly, costs are 39 percent lower in the United Kingdom and 34 percent lower in Denmark (read more here).

To read the remainder of this article, go to Pharmalot.

Ed Silverman, a contributing editor of YCharts, is the founder and editor of Pharmalot. He previously reported on the pharmaceutical industry and other business topics for the Star-Ledger of New Jersey, New York Newsday and Investor’s Business Daily. He can be reached at editor@ycharts.com.

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