In the battle over whether
to include prescription drugs under Medicare, some have questioned
whether taxpayers can afford the price. But the real opposition
to Medicare drug coverage comes from those who fear it would
cost too little: the pharmaceutical companies. They are fighting
this coverage because they fear that Uncle Sam would negotiate
to buy medicines at a much lower price.
-- We spend nearly twice as much of our national income as
other developed countries on health care, yet still have 44
million people without health insurance.
-- Half of all
U.S. health care spending is paid for through government spending
-- either federal, state or local.
-- Seniors who lack
prescription drug coverage because they rely solely on Medicare
and cannot afford Medigap or other complementary insurance --
about a third of the elderly population -- are being gouged
for their medicines. A recent congressional study found that
they paid more than twice as much for the most common prescription
drugs as the drug companies' most favored customers, such as
HMOs. For example, a senior without prescription drug coverage
would pay on average $188.96 per prescription for Norvasc, a
high-blood pressure medication. The cost to a preferred customer
would be $59.71.
The elderly generally are not well off,
so it is not surprising to find surveys that show as many as
5 million senior citizens choosing between prescription medicines
Last June, President Clinton proposed adding
very limited prescription drug coverage to Medicare, the government's
health insurance program for senior citizens and the disabled.
The pharmaceutical companies, whose rate of profit is more
than three times the average of other corporations, have been
using their enormous clout to block the plan, saying the industry
could only accept it as part of a comprehensive plan to redesign
the entire Medicare program.
To many people, it may not
seem obvious why these corporate giants would care whether Medicare
provides prescription drug coverage. But there is an important
principle at stake: The drug companies don't want the government
buying these medicines in bulk, and thereby negotiating for
a lower price.
In response to Clinton's proposal for limited
Medicare drug coverage, the industry spent millions on tacky,
misleading TV commercials. ``Flo,'' the arthritic Medicare beneficiary
featured in these ads, predictably tells viewers that she doesn't
want ``big government in my medicine cabinet.''
couple of weeks ago, the drug industry insisted that it would
only allow Medicare to cover prescription drugs if these were
provided through HMOs or other private plans. About 16 percent
of Medicare beneficiaries are currently enrolled in such plans.
Clinton hit back with a few jabs of his own, and then, according
to the New York Times, Gordon M. Binder, chairman of Amgen and
spokesman for the pharmaceutical industry, said that the government
could make money available to private entities -- insurance
companies and pharmaceutical benefit managers -- who could
buy drugs and negotiate discounts on behalf of people who are
covered by the regular fee-for-service Medicare program.
This takes some nerve. Who elected these people, anyway? It's
a little disturbing, to see them telling the president what
he can and can't propose to ease the burden of health care spending
on the elderly.
Unfortunately, Clinton's plan does not
provide much inspiration for people to rally around. Beginning
in 2002, seniors who opt to pay $288 per year would get a benefit
that would cover half of their prescription drug costs, but
only costs of up to $1,000 a year (that is, a maximum benefit
Some of the poorest beneficiaries -- about a
fourth -- would get a waiver for either the premiums, co-payments
or both. But the rest would not, and many seniors would probably
not enroll in such a plan. In 2008, the coverage would go up
to $5,000 (maximum benefit of $2,500), with the premium increasing
to $528 per year.
But even this limited coverage is much
less than it appears -- more than half of the $5,000 benefit
would be eaten away by projected increases in the price of prescription
drugs. This is why any plan to include prescription drugs under
Medicare needs to also include a plan for controlling prices.
A logical step for this would be to use the government's buying
power to bargain for lower prices.
The Clinton plan stops
short of this, but a reform bill currently before Congress would
do it. The Prescription Drug Fairness Act for Seniors, sponsored
by Reps. Tom Allen, D-Maine, and Henry Waxman, D-Los Angeles,
has 138 co-sponsors in the House. But the drug companies are
even more determined to kill this proposal in the cradle.
Documents leaked from a recent strategy meeting of PhRMA (the
Pharmaceutical Manufacturers of America -- annual budget: $52
million) reveal a packed calendar of grassroots lobbying campaigns
and state media tours, as well as a slew of studies by industry-sponsored
think tanks. Interestingly, this planning -- which included
efforts to kill the Clinton proposal -- took place less than
a week after industry spokesmen announced that they wanted a
truce with the Clinton administration in the war over drug prices.
The standard argument of PhRMA is that they need their monopoly
profits in order to fund all the research and development that
brings us new medicines. But this just raises more important
questions about the whole process of funding medical research.
From a strictly economic perspective, granting monopolies
to patent-holders is not necessarily an efficient means of funding
research and development. Unregulated monopolies are inefficient,
leading to higher prices and less availability than would be
best for society.
That's one of the reasons our government
allocates tens of billions of dollars each year to medical research.
In fact, about three-quarters of cancer drugs were discovered
with the help of government grants. But the drug companies still
seem to end up with the patents -- and the ability to charge
So American consumers are doubly exploited:
First we get to subsidize, with our tax dollars, the research
that creates the drugs. Then we get to pay the highest prices
in the world -- twice what Canadians or Europeans pay. Yet
we are not allowed to import these drugs from countries, such
as Canada or Great Britain, where they are sold at a much cheaper
price. (It seems that the principle of free trade is not sacrosanct
But it's even worse than that: The monopoly
profits of the drug companies then cycle back to fund everything
that keeps the system in place: lobbying ($148 million over
the last two years), election campaign contributions and PhRMA.
Not to mention the $8,000 to $13,000 per doctor that the industry
spends each year peddling its wares, buying gifts and paying
for travel and other favors in order to influence their choices.
The other major obstacle to overall reform is the only industry
that spends more on lobbying than the drug industry: insurance.
Until we break the stranglehold these corporations now hold
on public policy, the health care reform we need will remain
out of reach.
--Center for Economic and Policy Reseaarch: http://www.cepr.net
--National Center for Policy Analysis: http://www.ncpa.org/pi/health/hedex7.html
--Century Foundation's Medicare Watch: http://www.medicarewatch.org/index
Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, DC. He is co- author, with Dean Baker, of ``Social Security: the Phony Crisis'' (1999, University of Chicago Press)