Drug Companies Fight Prescription Benefits for Seniors

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Mark Weisbrot
Cleveland Plain Dealer, February 7, 2000
Knight Ridder/Tribune Media Services, January 26, 2000

What are the limits to corporate greed in the year 2000? We may be about to find out. 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 prescription drug coverage for Medicare beneficiaries.

Now we will see whether there is a political price to be paid for beating up on the elderly and the disabled in an election year.

To many people it may not seem obvious why these corporate giants would care whether Medicare, the government's health insurance program for senior citizens and the disabled, would provide 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.

Currently, seniors who lack prescription drug coverage-- 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 did the drug companies' most favored customers, such as HMOs.

Since the elderly, on average, are not well-off, it is not surprising to find surveys that show as many as five million senior citizens choosing between prescription medicines and food.

Until a couple of weeks ago the drug industry insisted that they 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.

In response to President Clinton's proposal last June for very limited Medicare drug coverage, the industry spent millions on tacky, misleading TV commercials. "Flo," the arthritic Medicare beneficiary featured in these commercials, predictably tells viewers that she doesn't want "big government in my medicine cabinet."

Clinton hit back with a few jabs of his own, and now the industry has said, ok, you can provide coverage for the whole Medicare program, so long as the purchasing is done by private entities.

This takes some nerve. Who elected these people, anyway?  It's a little disturbing, to say the least, to see them telling the President what he can and can't propose to ease the burden of health care spending on the elderly.

The standard response of PhRMA (the Pharmaceutical Manufacturers of America: budget $52 million) 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, the granting of monopolies to patent-holders is not necessarily the most efficient means of funding research and development. Unregulated monopolies are inefficient in general, 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. This is also true for major AIDS drugs like ddI, d4t, Ziagen, Norvir, and others. But the drug companies still seem to end up with the patents-- and the ability to charge exorbitant prices ($8900 a year for Norvir).

So American consumers are doubly privileged: 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 as much as Canadians or Europeans pay for them. Yet we are not allowed to import these drugs from countries where they are sold much cheaper. (It seems that the principle of free trade is not sacrosanct after all).

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: enormous lobbying ($148 million over the last two years), election campaign contributions, and PhRMA. Not to mention the $8,000- $13,000 per doctor that the industry spends each year peddling its wares, buying them gifts, travel, and other favors in order to influence their choices.

The fight over prescription drug coverage for Medicare is just one front in the effort to reform our health care system, which has nearly twice the costs of other developed countries yet still leaves 44 million Americans uninsured. 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 that these corporations now hold on public policy, the health care reform that we need will remain out of reach.


Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He is also president of Just Foreign Policy