In an agreement with President Obama and Senator Max Baucus, Chairman of the Senate Finance Committee, PhRMA pledged $80 billion toward the costs of health care reform. Though some of the details of this agreement have since become a matter of controversy, two parts of the pledge are widely known — (1) drug companies would give a 50 percent discount to Medicare beneficiaries for the costs of their drugs in the “doughnut hole” (annual costs between $2700 and $6,100); and (2) drug companies would give higher rebates on the drug costs of people on Medicare and Medicaid. It has been estimated that about $30 billion would be expended for these two purposes over the next 10 years, with the other $50 billion being directed to non-specified costs of reform.

This pledge was hailed as an “historic agreement” by the White House and praised by the AARP, but it soon became clear that much of this pledge will not result in savings to the federal government. Further, as pointed out by Charles Butler, a pharmaceutical analyst at Barclays Capital, those discounts won’t cost the drug companies much — “Because of the discounts, Medicare beneficiaries are likely to continue filling prescriptions in the doughnut hole, whereas in the past many stopped taking their medications because the drugs were unaffordable to them.”

The main point of contention in weeks after this agreement was whether the quid pro quo for the drug industry is assurance that the government will not pursue negotiation of drug prices. In August, an internal memo obtained by the Huffington Post confirmed that the White House and the drug industry lobby secretly agreed to protection of drug companies from price controls. (Grim, R. Internal memo confirms big giveaways in White House deal with big PhRMA. Huffington Post, August 13, 2009) Both sides subsequently issued conflicting reports in an effort to backtrack from the controversy. But many progressives in Congress felt betrayed. In response, Speaker of the House Nancy Pelosi declared that the House was not a party this agreement. The House E & C Committee, chaired by Henry Waxman (D-CA) soon passed an amendment to the House bill (H. R. 3200) calling for negotiation of drug prices by the government, and many Democratic leaders would like the drug industry to make a bigger commitment to health care reform.

Despite the lack of transparency in whatever deal was made between PhRMA, the President and Senator Baucus, the drug industry’s agenda is crystal-clear — expand its markets through wider insurance coverage and government subsidies, avoid price controls and competition from importation of drugs from other countries, and gain maximal patent protection from generic drug-makers of biotech drugs.

Much as the insurance industry feels more secure in the more conservative Senate, the drug industry has also counted on the Senate Finance Committee to roll back provisions in any House bill counter to its interests. PhRMA therefore became an active supporter of a bipartisan approach to health care reform. While not lobbying specifically against the public option, it expressed serious concern over any erosion of employer-sponsored health insurance. It also arrayed its forces in these directions:

• Joining with Families USA, a not-for-profit advocacy group for affordable health care, in a $150 million ad campaign supporting health care reform. This campaign includes a re-appearance of Harry and Louise, the fictional couple now on Medicare who played a large part in defeating the Clinton Health Plan in1993-1994. They now tell us on major national TV channels, some network news and Sunday talk shows that “a little more cooperation, a little less politics, and we can get the job done this time.”

• Teaming up with Families USA to lobby for expanded Medicaid coverage for
Americans making up to 133 percent of the federal poverty level ($14,000 a year for individuals). As Tauzin said: “When Families USA and PhRMA can get together, I hope that’s a sign to everybody in the House and Senate that we can find common ground, and that the president’s call to put party aside and to put ideologies aside and try to find what works is a good call.”

• Lobbying against proposals that would prohibit brand-name drug makers from paying generic drug makers to delay marketing of lower-cost generic drugs.

• In the first six months of 2009, PhRMA and Pfizer spent $13.1 and $11.7 million in lobbying, respectively.

It was soon apparent that the initiatives taken by the drug industry to appear to support reform was bound to please its CEOs and stockholders. These early returns were gained:

• Passage by the Senate HELP Committee (by a 16-7 vote) of a provision giving manufacturers of branded biotechnology drugs at least 12 years of patent protection before generic manufacturers can bring such drugs to market (the White House had proposed seven years while Henry Waxman had wanted five).

• Strong projected annual increases on prescription drug spending

In sum, in the same way that the insurance industry had already won preferential treatment from legislators even as developing health care reform legislation was in a fluid state, the drug industry had also achieved many of its important goals, especially assurance of strong future markets for its products for years to come. In our next post, we will see how the hospital industry has fared during this critical period of potential system change.

John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008. With permission of the publisher, Common Courage Press

Buy John Geyman’s Books at: http://www.commoncouragepress.com

Fast forward to the current debate in the United States over how to reform our increasingly unaffordable and dysfunctional health care system. Do we have any blind spots as this debate boils over such fundamental issues as the roles of the free market vs. that of government, and whether health care is just another commodity to be bought and sold on the open market?

Based on the content of the debate swirling around these questions and how the mainstream media are covering the story, we have two major blind spots in American culture today concerning health care — continuing denial that markets fail the public interest in health care, and that market failure leads to serious adverse economic, social and moral consequences. These two blind spots are interrelated and mutually reinforcing.

This recent statement by Rep. Paul Ryan (R-WI) illustrates the extent of our ideological blind spots about our market-based system. Commenting on a report by government analysts that health care spending will grow by about seven percent a year to a total of $4.3 trillion in 2017, he has this to say: “These are not signs that the health care market has failed.  In fact — and it is crucial to understand this — they are the predictable results of vast distortions imposed on the market over decades.  The government is the single greatest contributor to this problem.”

But markets in health care do not work the way they may in other sectors of the economy.  Here there is much less competition than market advocates proclaim, extensive consolidation within health care industries, wide latitude to set prices at what the traffic will bear, and pervasive conflicts of interest throughout the system encouraging over-utilization of wasteful, unnecessary and even harmful care.

The wreckage of markets in health care is all around us. Private insurers pursue their profits by many strategies to exclude or limit coverage of the sick. Their goal is to keep their medical loss ratios (the industry’s term for payments for medical care) below 80 percent, whereby they can retain at least 20 percent of premium revenue for overhead, profits and returns to shareholders. Whether hospitals, HMOs, nursing homes or mental health centers, investor-owned care has been documented by many studies to be more expensive and of poorer quality than not-for-profit care. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 has proven itself to be a bonanza for the drug and insurance industries. The government was prohibited from negotiating the prices of drugs as the Veterans Administration does so effectively, and the costs of drugs (the problem the bill was supposed to address) continue to surge upwards. Meanwhile the unregulated marketplace allows widespread profiteering through overuse in such areas as imaging centers, many of which are owned by the very physicians ordering the tests.

All this is predictable and of no surprise.  Joseph Stiglitz, Ph.D., Nobel Laureate in Economics and former chief economist at the World Bank, has this to say about markets: “Markets do not lead to efficient outcomes, let alone outcomes that comport with social justice.  As a result, there is often good reason for government intervention to improve the efficiency of the market.  Just as the Great Depression should have made it evident that the market does not work as well as its advocates claim, our recent Roaring Nineties should have made it self-evident that the pursuit of self-interest does not necessarily lead to overall economic efficiency.”

Our market-based system breeds costs, not restraint.  Despite the claims of their advocates, all of the various multi-payer proposals being considered in Congress, intended as they are to preserve a dying private insurance industry, have no effective methods to contain health care costs. With by far the most expensive system in the world, we ration care based on ability to pay. Despite the money we throw at health care, the quality and outcomes of our care compares poorly with many industrialized countries around the world that spend far less than we do.

And our societal blind spot extends as well to the social and moral consequences of our pro-market policies. As the income gap widens between the rich and poor and as the middle class falls into increasingly difficult straits in affording health care, our sense of social solidarity continues to erode.  Medical costs are now responsible for 62 percent of personal bankruptcies, most of whom were insured at the onset of their illness or accident.  All this while our supposed safety net, already frayed, further deteriorates in the face of increasing federal and state deficits.

So it is now time to take off our blinders and recognize these problems for what they are.  The government needs to play a greater role in health care, starting with a public system of financing that incorporates and builds on the strengths of our private delivery system.  Single-payer financing along the lines of the Conyers bill (H.R. 676) is an essential first step in the reform of U. S. health care for all Americans.

Whether we yet realize it or not, future generations will look back and wonder how we don’t see past our blind spots, in the same way as we find it hard to imagine the blind spot about cancer in France more than two centuries ago.

Adapted from The Cancer Generation: Baby Boomers Facing a Perfect Storm, 2009, with permission from the publisher Common Courage Press.  Order link

John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2009 by John Geyman. With permission of the publisher, Common Courage Press

Buy John Geyman’s Books at: http://www.commoncouragepress.com/