The Big PHARMA Relief Act

When Congress passed the Medicare Part D prescription drug benefit for seniors, we thought that something smelled suspicious. The pharmaceutical industry has generally resisted government involvement in its business. Why, we wondered, did big Pharma seem pleased with this huge government program?

Now that we are approaching the first anniversary of Medicare Part D, the answers are becoming apparent. This was a massive benefit for the pharmaceutical industry.

First, it was a fantastic relief valve for all the negative publicity that had been building for years about skyrocketing drug prices. Remember when Congressmen used to take well-publicized bus trips to Canada with senior citizens who wanted to purchase less expensive drugs? Those days are long gone. All the negative press about older people having to eat dog food so they could afford their medicine is over.

But prices are still going up and up and up! According to the Wall Street Journal (Nov. 6, 2006), “Companies have raised prices on many top-selling medicines by 6 percent or more this year, double the overall inflation rate.� Yet the media and the public seem oblivious. The outrage is gone because everyone figures that Medicare Part D has solved the senior citizen price problem. The trouble is that everyone under 65 who does not have insurance is stuck with escalating drug bills. And those with insurance will inevitably see premiums rise as companies pass along their rising prescription drug costs.

Profits at many drug companies are soaring. It’s not just because they have raised prices so substantially. There were a couple of amazing loopholes in the Part D program. For one thing, negotiating price is not allowed under this law. Even though Uncle Sam (your tax dollars at work) is the ultimate payer for Part D, the government cannot arm-wrestle drug companies over the price they charge. We are about the only country in the world that doesn’t use our muscle to control drug costs. (This is almost certainly why Americans pay more for drugs than anyone else.)

There is one other fascinating and overlooked loophole. Before Medicare Part D, really poor folks had their medicines covered under Medicaid. This government-supervised program required a mandatory 15 percent discount off standard prescription drug prices. In some instances the discount was substantially greater. This saved you, the taxpayer, a ton of money.

Guess what? Under the new law, low-income senior citizens have been switched from Medicaid to Medicare and the discount is gone. That means many drug companies are experiencing a huge windfall.

Some experts estimate that next year Medicare Part D will cost us $50 billion, or one fifth of the entire drug bill in America. Since it comes out of the public trough, few folks will complain that we may not be getting our money’s worth. But we should, since we are all paying for it.

Perhaps it is time to look abroad where other countries have been negotiating prices with the pharmaceutical industry for decades. You know the old saying—he who pays the piper calls the tune! Maybe a new Congress will stiffen its spine and demand a bigger bang for our bucks.