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Experiment Intends to Cut Medicare, Prescription Costs

Pharmaceutical industry squares off in a battle over prescription drug pricing.

The latest dust up over prescription drugs has pharmaceutical industry stakeholders squaring off in a battle over pricing.

At issue is whether Medicare's current payment policy encourages doctors to prescribe the costliest meds for battling life threatening diseases.

Currently, Medicare pays doctors and hospital outpatient clinics the average sales price of a drug, plus a 6 percent add-on. Medicare – and the Obama administration – speculate that this percentage influences doctors' decisions, raising costs for the government as well as those on Medicare, and are moving forward with an experiment where doctors and hospitals are instead paid a flat fee.

The experiment could become permanent policy if it lowers costs while maintaining quality. According to the AP, specialist doctors, drugmakers and some patient advocacy groups are trying to compel Medicare to drop the plan, while primary care doctors, consumer groups representing older people, and some economic experts want the experiment to move ahead.

Opponents suggest new rules will force patients to travel further for care, because smaller clinics will not be able to afford the higher up-front costs of the most cutting edge drugs under the new plan.

Those on the other side of fence call this a rhetorical scare tactic.

In reality, the plan has legs – partly because this administration is short on time and ready to showcase a bold reform initiative. According to Leigh Purvis, a health policy expert for AARP, which supports the experiment, "We've done a lot of talk about prescription drug spending, but we really haven't moved to the action part.”

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