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.

Of course, they object if you call a spade a spade. It doesn’t sound good if you say they’re ripping off seniors when they’re right in the middle of ripping off seniors, so they fill Spin Alley with PR flacks and lobbyists who will deny, deny, deny.

The data was sharply contested by both drug manufacturers and health insurers, who accused Oversight Committee staff of cherry-picking a few brand-name drugs to exaggerate cost increases. A push toward generic drugs has held overall costs down, and competition has generally kept premium increases to a minimum. Last fall, the Department of Health and Human Services projected that premiums for the drug plans would stay about where they were the first year, $24 a month.

“You have to look at the broader trends,” said Karen Ignagni, president of America’s Health Insurance Plans, the insurance lobby. “And the news has been nothing but positive, exceeding all expectations.”

Yeah, but for Wall Street and drug companies. For consumers the news is all bad. Big Pharma lobbyists have been throwing money around Washington like Mardi Gras favors for the last 6 years, with the result that the “My hand is out, my back is turned” Republican Congress let them write the legislation that lets them get away with this crap, after which the Pubs would do just what they’d been paid to do: pass it.

“A push toward generic drugs has held overall costs down…”

Oh yeah? Then how do you explain this:

The new drug my father’s oncologist was prescribing for him was well known to me (for legal reasons, I will omit its name and the manufacturer’s name), for it had a fearsome reputation from decades earlier. How expensive could this drug be, I wondered, when all the research and development had been done 40 years ago, at a fraction of the modern costs? A hell of a lot, was the answer. I still don’t know why. But in my father’s case, it was about $47,000 a year, with the potential to triple, based on his clinical response, to $141,000 a year. At this rate, in seven years, he could conceivably have spent a million dollars.

Big Pharma has been successfully fighting the attempt to allow generics for its most lucrative drugs, even, as in this case, when they’re 40 years old. Far more generics are kept off the market by intense lobbying than are allowed to be sold. The excuse they use is that they have to “invest” in all that R&D. Which sounds good until you find out, well, they don’t.

[D]rug companies will make out like bandits they are, making profits that are the envy of the Fortune 500. They will reinvest little of their profits in new drug development. Hundreds of them in the industry invested so little in research that all of them together produced only 7 genuinely new drugs last year.(emphasis added)

“Last fall, the Department of Health and Human Services projected that premiums for the drug plans would stay about where they were the first year, $24 a month.”

Again, pure bullshit. The second largest insurer in the nation handling the Medicare prescription drug benefit, Humana Inc, raised its premiums just this past January by as much as 466%. And the program is only a year old.

Henry Waxman’s House Oversight and Government Reform Committee is going to be holding hearings on all this, and its investigators don’t seem to be any more impressed with Big Pharma’s rationales than I am.

Committee investigators say the insurers and drugmakers are looking backward, at last year’s performance, not where the drug benefit is heading. In its first year, the program’s biggest cost savings came from lower-than-expected enrollments, especially among lower-income seniors. The other big savings came from insurers pushing seniors to generics where they could.

But with that accomplished, continuing cost-containment will rest on holding down climbing prescription drug prices. And investigators say that does not look promising. Medicare actuaries projected last year that insurance companies would extract rebates from drugmakers totaling 6 percent of drug costs in 2007. Instead, they will be 4.6 percent. In dollar terms, Medicare beneficiaries will spend $1.2 trillion on prescription drugs over the next decade. A reduction in discounts from 6 percent to 4.6 percent over a decade would cost beneficiaries and taxpayers about $17 billion in unanticipated prescription costs, with all of that going toward the drug industry.

Brand-name drug prices were expected to climb 7 percent over all of 2007. They nearly hit that mark in mid-April.

That tell you anything?

And by the way – you know those big “cost savings…from lower-than-expected enrollments”? The enrollments were lower than expected because Big Pharma’s govt partner, the Bush Administration, did everything it could to hide, confuse, and distort the process by which seniors signed up. It was estimated at the time that only about a third of the seniors who were eligible actually made it onto the rolls.

The Bush Admin helped Big Pharma get seniors in a vise, and by gawd they’re going to squeeze until every last hard-earned penny is transferred from every last senior’s life savings into some drug company CEO’s pay package. The only way for Congress to stop them is to re-write the law to protect consumers instead of corporate profits. Whether they’ll have the guts to do that or not remains to be seen.


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