Is There a Reason to Negotiate Drug Prices Under Part D of Medicare? And If So How?

Medicare's Part D prescription drug benefit has offered affordable coverage to millions of elderly Americans since its January 2006 implementation. A great deal of concern has been expressed about whether drugs are being purchased in a cost-effective manner. Many believe that the government should be negotiating prices with pharmaceutical manufacturers. We look at prescription drug pricing under Part D by examining the logic behind existing arrangements and by reviewing initial evidence on the behavior of prices. We make a modest proposal for how to improve purchasing of prescription drugs in Medicare. (January 2008)