By and large the pharmaceutical industry has escaped price controls in the U.S. — especially when compared to other markets around the world.  Is this situation tenable, and if not, what will the implications be for the industry?

Since 2003, Congress has prohibited Medicare from negotiating drug prices directly with pharmaceutical manufacturers.  Even though Barack Obama promised to “allow Medicare to negotiate for cheaper drug prices” throughout his presidential campaign, this element was not included in his healthcare reform legislation, probably because it would massively complicate passage of legislation that was already on thin ice.  In reality, private insurance companies do negotiate prices on behalf of their Medicare beneficiaries, but many economists estimate that further savings could be realized if the government could use its purchasing power to negotiate directly.  Several attempts to repeal the ban have stalled in Congress.  Clearly allowing the largest purchaser of drugs in the country to negotiate — and presumably reduce — prices would have severe revenue implications for the industry.

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