This is the Cato Daily Podcast for Monday, August 28th, 2003.

I'm Caleb Brown.

The Biden administration will soon announce a list of drugs for which the Medicare program will begin

truly negotiating prices with the companies that produce them.

But it's important to understand the incentives involved

for the players.

Cato's Michael Cannon comments on this new way of dealing with drug prices.

It is difficult for me at least to get my head around the notion of Medicare and pharmaceutical

manufacturers negotiating with one another because it seems like an almost entirely one-sided discussion.

So can you characterize like what that what the table looks like where this kind of

negotiation takes place? You would think it would be one-sided but it often is and it often is but it's one-sided in the wrong direction.

See the rhetoric around the issue of what should Medicare pay for prescription drugs, what should the prices be?

Is it, it's very confusing and it creates the impression that Medicare has not

been negotiating with drug companies. It's been negotiating at the level of legislation

and in those negotiations the drug companies always win. There's lots of

evidence we could cite it to indicate that Medicare is paying too much for many or most of the

prescription drugs that it purchases and that is because the negotiations within Congress are so one-sided that the pharmaceutical industry keeps

winning and the taxpayers keep losing.

What's happening now, what everyone's calling negotiation is when the Medicare bureaucrats say to the drug companies, hey, we're buying

this drug, but we think the price is too high, we're going to try to bring this drug price down. There's some hope that they will be able to do that and we'll have to see, but the

inflation reduction act gave the bureaucracy the power to name or require them to name up to 10 drugs

that they're initially going to try to drive down the prices for and if the pharmaceutical industry does not play ball then they have to, well the law calls them penalties that they have to pay to Medicare.

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