[Ip-health] Hooked on Drug Money: Will Congress Take a Stand on Medicare?

[Riaz K Tayob]

   Hooked on Drug Money: Will Congress Take a Stand on Medicare?
     By Dean Baker
     t r u t h o u t | Columnist

     Wednesday 10 January 2007

     It's payback time, as the lobbyists say in Washington. One of the
key planks in the Democrats' election platform was changing the Medicare
drug benefit by allowing Medicare to negotiate lower prices with the
pharmaceutical industry. While this may not have been as important to
their victory as the war, voters were outraged by the Medicare drug bill
approved by Republican Congress. The benefit was designed to enrich the
pharmaceutical and insurance industries at the expense of taxpayers and
beneficiaries.

     Now the Democrats are in a position to make good on their promise
to reform the bill, and the pharmaceutical industry is going all out to
protect its future profits. The basic story here is very simple. The
prices paid by the insurers participating in the Medicare program are
far higher than the prices paid by the Veterans Administration or
governments that negotiate directly with the drug companies.

     If Medicare negotiated similar discounts with the industry, it
could save taxpayers and beneficiaries between $300 and $400 billion
dollars over the next decade. This comes to between $2,500 and $3,500
per household. In technical terms, this is real money.

     In order to protect its profits and the big bucks earned by the
CEOs, the industry is pulling out all the stops to make its case. This
means making every claim imaginable, some of which are even contradictory.

     Claim #1 is that the government cannot get lower prices than the
private insurers. This could be true if the people running the Medicare
program were uniquely incompetent. We have the data. The Veterans
Administration pays prices that average 40 percent less than the
insurers participating in the Medicare program. The same is true of the
Canadian government, the Australian government, and all the other
governments of wealthy countries that run health care programs. If we
really have such incompetent people running Medicare, then we need to
replace them with qualified managers, but that is not an argument
against reforming the program.

     It is important to remember that drugs are cheap. Wal-Mart is
selling prescriptions of most generic drugs at $4 a piece. The only
difference between the drugs that Wal-Mart sells for $4 and the ones
that cost hundreds of dollars is that the latter enjoy
government-created patent monopolies. It is only these patent monopolies
that make drugs expensive; in nearly all cases they are cheap to
produce. In principle, nearly all drugs could be profitably sold at $4
per prescription.

     Claim #2 is that if Medicare negotiated prices, beneficiaries would
only be able to get the drugs chosen by the government. This is wrong as
well. The Veterans Administration has a formulary with preferred drugs
available at lower prices. If patients have a need for drugs not on the
formulary, they can still get them, they just pay a higher price - a
price comparable to what the private insurers pay now.

     Claim #3 is that if Medicare paid lower prices, then the industry
wouldn't have the money to finance research. While lower profits would
reduce the amount of money available for research, the impact on the
development of useful drugs is likely to be very minor. The industry
takes in more than 6 dollars for every dollar it spends on research.
Furthermore, close to two-thirds of research spending goes to developing
copycat drugs that largely duplicate the function of existing drugs.
This means that the industry takes in close to $20 for every dollar it
spends on developing breakthrough drugs.

     Lower profits may have a marginal impact on the process of
developing new drugs, but so would a snowstorm that shut the labs for a
few days. There are far more efficient ways to finance drug development
then shoveling hundreds of billions of dollars to the big drug companies
in the hope that a small fraction ends up financing useful research. (Of
course, if the industry is right that Medicare couldn't negotiate lower
prices [claim #1], then we don't even have to worry about claim #3.)

     The industry doesn't have much of a case, and according to the
polls, it doesn't have much popular support either. But it does have
money. It uses this money for campaign contributions to members of
Congress and presidential candidates, to buy ads in newspapers that
support their case, even to make contributions to National Public Radio.

     But, the basic story is simple. The pharmaceutical industry wants
the government to reach into your pockets to increase their profits.
Some people may die in the process, but at least the CEOs will get big
paychecks.

     Dean Baker is the co-director of the Center for Economic and Policy
Research (CEPR). He is the author of The Conservative Nanny State: How
the Wealthy Use the Government to Stay Rich and Get Richer
(www.conservativenannystate.org). He also has a blog, "Beat the Press,"
where he discusses the media's coverage of economic issues. You can find
it at the American Prospect's web site.

   -------http://www.truthout.org/docs_2006/011007A.shtml