INFLATION REDUCTION ACT AFFECTS MEDICARE PRESCRIPTIONS
BUT LOOK AT THE HIDDEN COSTS
Congress recently passed the Inflation Reduction Act into law. Parts of the law affect Medicare beneficiaries. The law empowers the Department of Health and Human Services (DHHS) to negotiate directly with drug companies on the price of medications. The power is not for all medications, only a limited number of high-priced medications many Medicare beneficiaries purchase. Government intervention in the marketplace to reduce drug costs for seniors on fixed and, in many cases, lower incomes sounds like a great idea. Who would not be for that? Pharmaceutical
the parts. The blender stops and starts, sputters, then fails.
Cuban’s CostPlusDrugs.com doesn’t cover Eliquis, Januvia, Jardiance, Victoza, Trajenta, Humira, etc. If he does work a deal with pharmaceutical companies on more of these high-price medications, he will help many people. The challenge is that these drugs are under patent protection, so there is no competition. The pharmaceutical company has a temporary monopoly, and these medications are far better than the cheaper alternatives. Pharmaceutical companies with this patent protection have little incentive to discount their medications. Even a government as powerful as the U.S. cannot suspend the laws of economics. When it attempts to do that, the long-term consequences are destructive to the average person. Remember, when the Iron Curtain lifted and the Berlin Wall fell, the difference between Western Germany and Eastern Germany was stark. They had the same people, the same land and resources, and the same cultural heritage, yet one was capitalist; the other was communist. One was rich and growing; the other was poor and trapped in a lower standard of living. Look at the Korean peninsula at night from space. North Korea is dark, except for a small light in Pyongyang’s capital. South of the 38th parallel, it is as bright as the U.S. Same people. Different systems. In the short term, you may see some lower prices on one of your expensive medications. In my opinion, the long- term effect may not be so noticeable, but the average citizen’s economic situation will be diminished.
In a genuinely free market, entrepreneurs see larger than normal profit margins. They are incentivized to enter that market because there is room to undercut the competition. Eventually, the competition compresses margins. Entrepreneurs stop entering the market because competitors squeezed out any big profits. Mark Cuban is an entrepreneur who is doing that. Cuban’s idea is simple. Order drugs online on his website CostPlusDrugs.com. You pay 15% over the manufacturer’s cost, $3 for pharmacy labor, and $5 for shipping. For example, Restatis (generic: Cyclosporine) for dry eye is expensive. Without insurance, it would cost over $550. With a discount card, like GoodRx, the drug costs $205 at Walgreens. Mark Cuban’s Cost Plus Drugs has Restatis/Cyclosporine at $72.76 from the manufacturer, $10.92 for the markup, $3 for pharmacy labor, and $5 for shipping. The total is $91.68, much less than $550 or even $205. On a Medicare Part D prescription drug plan, you pay the $505 deductible for Restatis. Then you have a $47 copay. Eventually, it will jump up to the Gap or “Donut Hole” price of $149. That does not include the monthly premium for the Medicare Part D prescription drug plan. That could range from $25–$80 per month. Cuban’s company would be far better in this case. Cuban is just getting started with his new drug company. Hopefully, his company will expand how many medications it covers. Currently, many common high- priced drugs still are not covered. Mark
companies make billions. They are charging too much, aren’t they?
In reality, governments have the power to kill companies and whole industries. They can impose price controls. But should they? Have governments imposed price controls in the past? We’re all old enough to remember the Soviet Union and the satellite countries of the Eastern Block. The Communist countries were plagued with constant shortages and long lines for simple things like bread. Why? Citizens had money. Why the long lines? The economic wing of the Soviet government met regularly to determine prices for products and services from the time of Lenin through Stalin down to the end of the Soviet Union under Gorbachev. In a free and competitive market system, prices are the signals that align everyone in that market into an efficient production system. When prices are artificially manipulated, the signal is gone. The economy doesn’t know what to do or what to prioritize. It is like an appliance without wires and circuits to connect
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