Setting Drug Prices in Medicare: Toward a Competitive Market?

In an effort to reduce prescription drug spending a wide variety of legislative and regulatory action is under consideration by congress and the administration. For example, some have proposed setting prices for drugs in Part B by referencing the prices of a basket of drugs from foreign markets, many of which are regulated or otherwise influenced by government agencies. Other proposals under consideration include setting prices based on methods of binding arbitration in which a “fair” price is decided by an external arbitrator. Commentators and stakeholders have offered a wide range of perspectives on the extent to which various proposals would reinforce or undermine market competition. In this session, we will review prominent recent proposals for controlling prices in Medicare, the degree to which they strengthen market competition, and implications for static and dynamic efficiency.