Medicare Drug Benefit Turns Into Bonanza for Big Pharma

It didn’t take a genius to figure out that Bush’s prescription drug plan – you know, the one that expressly forbids Medicare from bargaining over prices – was going to turn fairly quickly into a bonanza for Big Pharma, so I don’t imagine it will be much of a surprise to learn that that’s exactly what’s happening.

After some initial success containing drug prices, private insurers in the new Medicare prescription drug program may be losing their leverage over drug manufacturers as they try to hold down medicine costs for seniors and the federal government, House investigators have found.

Prices for 10 of the most prescribed brand-name medications have shot up an average of 6.8 percent since December under Medicare private insurance plans, while wholesale prices for the same drugs have risen just 3 percent, House Oversight and Government Reform investigators say. The cost of a month’s supply of cholesterol-controlling Lipitor had climbed 9.6 percent, to $84.27 in mid-April, from $76.91 in mid-December. Over the same time, list prices climbed 5 percent.

Premiums for Medicare drug plans have jumped 13 percent over the past year, when the drug plans went into effect, the investigators say.

And the rebates that insurance companies are wringing out of drug manufacturers are expected to total 4.6 percent of total drug costs, down from 5.2 percent last year. A year ago, Medicare actuaries had expected insurers in 2007 to secure manufacturers’ rebates of 6 percent, then pass those savings on to seniors and the government.

“Essentially as an economist this is just what I would have predicted,” said Marilyn Moon, director of the health program at the American Institutes for Research and a former trustee for Medicare and Social Security. “When you introduce a new program, with all of the fanfare, everyone is anxious to get the best prices, the best look and demonstrate the private sector can handle it. But over time, when you’ve gotten your customers lined up, prices tend to slip upward.”

Slip upward”? Slip?! They didn’t slip. They were pushed.

Economists and accountants always like to talk as if the market is a force of nature with its own rules that’s beyond any human’s control, but that’s bullshit. Actually Moon explains the problem quite competently if you put aside the force majeure thang: once a corporation’s got you hooked, it can abandon loss-leader pricing and return to its comfort zone – unrestricted greed.

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