Big pharma gets a windfall
An excellent article by Tony Pugh, an investigative reporter for Knight-Ridder newspapers, shows once again how those who control an industry can get the rules and laws changed to benefit them, to the tune of billions of dollars.
The article ("Windfall for drug industry raises questions", 2/2/06) shows how the Medicare drug bill, passed last year with great hoopla over its benefits to elderly consumers, has turned into a bonanza for the big drug companies. That ends up as an estimated $2 billion in extra profits as drug companies are no longer obliged to pay rebates on government drug purchases for the poor. Profits are likely to add up to $40 billion over ten years, a direct subsidy of drug companies by taxpayers.
The boost in profits comes from a shift in the drug coverage of 6.4 million poor and elderly people from Medicaid to the new Medicare drug benefit. Unlike Medicaid, which requires drug companies to charge their lowest or "best price" for medications, the Medicare program relies on competition among private drug plans to keep prices low. By eliminating the need to discount drugs for the government, the industry can now pocket the savings.
According to a study by the Prudential Equity Group, Medicare drug plans "will negotiate discounts amounting to only 5 percent of what the drug companies paid in rebates to Medicaid on those products." In the case of one company, AstraZeneca, the money pocketed for one antipsychotic drug could boost corporate profits by 8%. For Eli Lilly, removing the discounts on a schizophrenia drug could boost profits by as much as 6%. Drugs treating psychosis are among the most expensive ones bought for the elderly poor.
Another analyst pointed out that profits will increase as companies drop health benefits for retirees and force pensioners into the Medicare program. Congressman Henry Waxman is quoted as writing: "There appears to be no rational policy justification for providing this immense hidden subsidy to the drug industry. ... It appears that the only party benefiting in this arrangement are the drug companies that give millions to the Republican leaders who drafted the legislation." Drug companies gave over $14 million in contributions to the legislators.
The whole plan was a disaster from the first, as the law creating in it has built in clauses that restricted the discounts that the US government, now (indirectly) the biggest buyer of pharmaceuticals with 40 million Medicare recipients, could demand. The many private plans that the law created have little bargaining power. In other countries, where the law was not written by the pharmaceutical industry, the government uses its buying clout to lower prices.
Another case of where being big, working in a friendly rivalry through trade association lobbyists, means having a hand on the pen as legislation is written, much to the eventually profit of the biggest companies in the industry.
