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Democrats reach deal aimed at cutting drug prices for seniors

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A pharmacist arranges medicines on a shelf.

The Democrats' plan would cap out-of-pocket spending at $2,000 a year and give Medicare the power to negotiate the costs of some medicines directly with drugmakers. FatCamera via Getty Images

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As part of President Joe Biden’s yet-to-be-settled social-spending plan, Democrats in Congress have reached a deal to lower the cost of prescription drugs for older Americans.

The agreement would cap out-of-pocket spending for seniors at $2,000 a year and, for the first time, give Medicare the power to negotiate prices directly with drugmakers.

This would apply to only some prescription drugs, but allowing the federal government to use its purchasing power to negotiate is a big deal.

When Medicare establishes a rate for, say, a visit to a doctor, other health insurance providers tend to follow.

“The old saying goes that when Medicare sneezes, the health care system catches a cold,” said Larry Levitt with the Kaiser Family Foundation. “That’s because Medicare controls so much of the money in the system.”

That negotiating power would only apply to a handful of drugs — but the change could still be significant, said Mariana Socal with the Johns Hopkins Bloomberg School of Public Health.

“You have a few drugs that are driving a lot of the spending, either because they’re very expensive or because a lot of people are taking these drugs,” Socal said.

The pharmaceutical industry’s main lobbying group, PhRMA, has consistently — and successfully — fought proposals to give the government the power to negotiate drug prices. It’s spent more than $22 million lobbying Congress so far this year, and it said that this deal threatens innovation in research and development.

But Boston University Questrom School of Business professor Rena Conti pointed out that highly profitable new drugs won’t be affected. Prices will be negotiated “only for products that have been on the market and available for sale in the U.S. for a while,” she said.

Drug companies have already recouped the costs of developing those drugs, Conti added.

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