Elisabeth Rosenthal writes in the New York Times: "Medicare, by law, is not allowed to negotiate discounts on drug prices. But you can bet Amazon-JPMorgan-Berkshire will."
For what it's worth, the pharmaceutical industry calls the claim that Medicare can't negotiate drug discounts a "myth." It points out that the Medicare prescription drug benefit is administered through pharmacy benefit managers that "already negotiate discounts and rebates with the manufacturers."
I did check the text of the law, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. It does include this language:
Noninterference.--In order to promote competition under this part and in carrying out this part, the Secretary-- "(1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and "(2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.
This "may not interfere" language applies only to the Secretary of Health and Human Services, not to the president. So if you were worried that the president broke the law with his drug price language in the State of the Union Address, you can relax.
