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Comment by gumby | Hacker News Reader

Not just generics.

Ever get a coupon from a drug manufacturer that drops your copay from hundreds of dollars to $10 or $20? Ever wonder why?

It’s because Medicare gets an automatic discount (I think 20% these days but I’m no longer in the biz) from the manufacturer’s official price. So they simply set the official price at some huge figure and rake in huge bucks from the largest buyer, Medicare.

Then they negotiate with the for profit insurance companies and subsidize the copays so that nobody complains to their congress person.

It’s a huge rip off. Medicare should be paying a discount to the median price actually paid on the open market. But apparent nobody has an incentive to fix this.

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> It’s a huge rip off. Medicare should be paying a discount to the median price actually paid on the open market. But apparent nobody has an incentive to fix this.

This is utterly wrong. First of all, Medicare Part D covers pharmacy benefits. Part D is supplemental insurance purchased by seniors from a private insurance company. If you are too poor, I think you go on Medicaid. Also, Medicare Part D plans DO pay less than commercial plans.

This study is probably complete B.S. because no one knows how much is paid in drug rebates. Manufacturers pay the insurance companies (including Medicare) huge amounts of money (back) for prescription drug utilization coming from their members. In short, it's a legal kick-back. And I'm not kidding, it's a huge amount of money (like 20% - 30% of the reimbursement price)

U.S. drug pricing is broken for many reasons, and sorry to call you out, but nothing that you said is true. Everybody gets ripped off by big pharma, not just the government.

It’s by design. The republican position was that allowing Medicare to negotiate drug prices would amount to price controls. They also forbade the using of Federal funds to reimport drugs from countries like Canada who negotiate prices. It’s a specious argument with predictable outcomes that were in fact predicted and widely discussed at the time the legislation was enacted.

Medicare doesn’t cover drugs, except for drugs administered in a hospital setting.

The Republican position was that drug coverage should be through private insurance (Medicare Part D plans), instead of through Medicare itself. Part of the rationale was that Medicare would have monopsony power over drug pricing: https://www.britannica.com/topic/monopsony, as opposed to a compatible market with multiple buyers and sellers.

The Medicare Part D plans themselves assuredly do negotiate drug prices: https://crsreports.congress.gov/product/pdf/IF/IF11318 (“Part D sponsors, working with pharmacy benefit managers (PBMs), negotiate prices with drug manufacturers and contract with pharmacies to dispense drugs to plan enrollees. Negotiated price concessions mainly take the form of rebates (after-sale reductions) from a manufacturer’s list price for brand-name drugs.”).

> They also forbade the using of Federal funds to reimport drugs from countries like Canada who negotiate prices

Seems easier to grant Medicare most-favored nation status for prices since that's effectively what reimporting does.

Part D plans are privately administered by companies that are supposed to compete with each other. The prices aren't just whatever the drug companies want.

Interesting how there doesn't seem to be much competition.

https://www.kff.org/medicare/issue-brief/medicare-part-d-a-f...

“The average Medicare beneficiary has a choice of 54 Medicare plans with Part D drug coverage in 2022, including 23 Medicare stand-alone drug plans and 31 Medicare advantage drug plans.

Sure, they fight for pennies for plan administration, but don’t have the market power to have any leverage, by design.

It’s not a meaningful competitive process.

You’re confusing two different things: monopsony power versus competitive pricing.

Monopsony power is when the market dominance of a buyer allows it to drive prices below the efficient level. But monopsony prices aren’t necessarily efficient prices. Wal-Mart’s pricing power, for example, has well demonstrated negative impacts on the upstream supply chain.

A competitive market, with numerous buyers and sellers, by contrast, will have higher prices than a market with a monopsony buyer. But at least in theory those prices will be efficient.

This is correct and Medicare Part D came in under budget due to private negotiation of drug prices.

I love how accurate posts on HN get aggressively downvoted off they go against the narrative.

The fact is that a manufacturer sells a product at 80% gross margin to a distributor. Attempting to negotiate with the manufacturer is illegal. The resellers of said product go through an intense competitive process and earn a 2-4% margin. So the plans will offer cheap loss leaders… “free metformin!” and make it up elsewhere. Meanwhile, the government is paying $5/pill for some amoxicillin reformulation or whatever.

What “narrative” are you upset about again? Personally, I don’t think getting a stream of risk-free government guaranteed business should yield higher margins than coke dealers.

That's not how it works at all.

This is Medicare Part D - the plans are administered by private insurance companies - Medicare just pays the premiums, they don't pay directly for the drugs.. Private insurers compete for Medicare patients to sign up for their plans.

Private insurers do negotiate directly with manufacturers. Studies I've seen show they get similar (or better!) price they do with their private insurance plans.

The narrative I'm complaining about is - "there is no negotiation". This comments are typically by people who don't even know how it works.

> It’s a huge rip off. Medicare should be paying a discount to the median price actually paid on the open market.

Non-Medicare federal spending often requires you sign a contract that the government gets the best price you give anyone. Blue Cross negotiates a better rate next month? Medicare automatically uses that one instead.

It doesn't just let them fuck Medicare, it lets them fuck private insurance too.

I'm on a med that's $12k every two months. If I were on a high deductible plan, they'll happily cover that $12k for the first go, because I meet my deductible and then insurance pays the other five doses. The cost to them is basically nil; chances are the actual one mililiter of fluid costs them a marginal $20 or so to make.

> chances are the actual one mililiter of fluid costs them a marginal $20 or so to make.

quoting production prices when discussing duds is as silly as talking about IP when discussing grocery store item costs. “Bananas at 1$!? They probably didn’t even need to spend any money on inventing it”

When you pay for a drug, your not paying for production, transport or marketing, you’re paying for the 20 years of research that went into bringing it from a random idea of “this might work” to a product on the market, and for the 200 other drugs the company tried unsuccessfully to bring to market along side it.

Now I’m not saying this justifies the prices of all drugs, but it’s silly to discuss pricing while acting like the absolutely largest factor doesn’t even matter.

The marginal cost of a cup of coffee is basically nil but I don’t expect a free cup every day from Starbucks.

Other way around.

Starbucks gives you the first cup free, because it means the rest of your cups that year are free to you - you've hit your deductible and soon after your out-of-pocket max - but Starbucks gets to charge insurance $500/cup for them.

If they didn't have the program, no one would pay the first $500 because it's out of pocket, and Starbucks gets nothing. By forgoing the first $500 of revenue they get the rest.

How do I hit my deductible if I didn’t pay for the first dose?

Because in most states, the value of the coupon counts towards your deductible. (By law in some, by standard practice in others.)

https://www.ncsl.org/research/health/copayment-adjustment-pr...

Like in software (less so in the cloud days), marginal costs are not particularly relevant.

It is when covering $20 of marginal costs gets you past to a bunch of non-marginal costs.

This isn’t how it works.

You can’t use co-pay cards with publicly funded insurers like Medicare and Medicaid. It’s regarded as “inducement”.

https://www.npr.org/sections/health-shots/2018/05/09/6091508...

Only private insurers can accept co-pay cards.

> It’s because Medicare gets an automatic discount (I think 20% these days but I’m no longer in the biz) from the manufacturer’s official price. So they simply set the official price at some huge figure and rake in huge bucks from the largest buyer, Medicare. Then they negotiate with the for profit insurance companies and subsidize the copays so that nobody complains to their congress person.

This is all completely wrong, to a point where I don't even know where to begin to correct it, because there are three separate misconceptions here layered on top of each other.

Not only does Medicare get most-favored-nation pricing (ensuring that they pay less than private insurers do), but pharmaceutical benefits for Medicare are provided under Part D, through for-profit insurance companies.

Furthermore, it is illegal to use copay assistance from manufacturers for brand-name drugs if you are using Medicare or Medicaid.

> It’s a huge rip off. Medicare should be paying a discount to the median price actually paid on the open market. But apparent nobody has an incentive to fix this.

Then they start issuing rebates instead of discounts?

Or yeah, sure, everyone's definitely paying $100 for this quantity of this drug, then we kick insurance back $80 for advertising for every unit that makes it to an end consumer through them.

There's no easy way out of price discovery when you are the largest buyer, because it becomes more than profitable enough to structure sales to exploit your policy to make up for the loss in doing the structuring.

The Federal government and government in general is really good at commodity procurement. The processes and legal requirements give them the ability to price and fairly procure even single source commodities.

I’ve done scaled procurements at a very large, not federal level. We were almost always 10-20% lower unit cost than large corporate, and sometimes even better. At the Federal level, the law gives them “most favored” status, and they will sue vendors for fraud if they offer lower prices for the same commodity without lowering the federal cost.

“It’s hard” is a common refrain for policy discussions. “That’s bunk” is my reply. Policy without graft isn’t much harder than using high and mighty principles to enrich people at taxpayer expense.

Most drugs aren’t commodities.

The GP wasn't asserting that drugs are a commodity. They were arguing against the blanket implication that the federal government can't get efficient price discovery because it's the whale in the market. The GP is pointing out somewhat similar markets where the US is doing very efficient buying, even for single-source commodities (with parallels to single-supplier drugs), despite presumably also being the whale in the market.

> Then they start issuing rebates instead of discounts?

They already do, and it's a huge amount of money. It's how they keep prices opaque. There is a list price (retail price), the pharmacy dispenses the drug, and gets reimbursed a variable amount from the insurance company (called the reimbursement price), usually about 50% of the list price. Then, the insurance company gets a kick-back from the drug manufacturer (usually for non-generic drugs). Medicare also gets these kick-backs, and they stopped disclosing the actual amount around 2016.

That's assuming structing actually works here. It's not hard to define average price as cost after all incentives be they rebates or raffle tickets with “zero nominal value.”

This is how most single payer systems work.

Australia [1] uses a broader spectrum of metrics but price of drugs in other international markets is a substantial part of it's analysis and negotiations.

[1] https://www.pbs.gov.au/industry/pricing/pbs-items/historical...

Ever get a coupon from a drug manufacturer in exchange for all your personal information and some disclosure for them to share your medical information? That is why.

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