Boston University School of Public Health
Health Reform Program
October 31, 2003
61 Percent of Medicare’s New Prescription Drug Subsidy Is Windfall Profit to Drug Makers
By Alan Sager, Ph.D. and Deborah Socolar, M.P.H.
Congress has declared its commitment to keeping prescription drug prices high under any Medicare drug benefit. This report shows that these unrestrained prices-given the remarkably low real cost of producing the added volumes of pills that Medicare patients need-will bestow enormous windfall profits on prescription drug makers.
An estimated 61.1 percent of the Medicare dollars that will be spent to buy more prescriptions will remain in the hands of drug makers as added profits.
* This windfall means an estimated $139 billion dollars in increased profits over eight years for the world’s most profitable industry.
* At $17 billion annually, this means about a 38 percent rise in drug maker profit.
This is the main reason why the proposed legislation gives patients only a scanty drug benefit, with high continued cost-sharing. The gift to drug makers is also why the plan requires a high taxpayer subsidy-money borrowed from our children and grandchildren.
The legislation would explicitly prohibit Medicare itself from acting to negotiate or contain the drug prices paid under the new program.
… the plan itself is not durable because it is simply too costly.
Congress is simply deferring serious work to shape a sustainable drug industry.
http://www.bumc.bu.edu/www/sph/hs/images/Health_Reform/Medicare_Rx_bill_windfallprofit.pdf
Comment: Physicians, hospitals, laboratories and other providers under the Medicare program have regulated limits on the rates of reimbursement for services and products provided. But look at the language of H.R. 1, the House version of the Medicare prescription drug legislation:
(D) NONINTERFERENCE- In carrying out its duties with respect to the provision of qualified prescription drug coverage to beneficiaries under this title, the [Medicare Benefits] Administrator may not–
(i) require a particular formulary or institute a price structure for the reimbursement of covered outpatient drugs;
(ii) interfere in any way with negotiations between [the various types of private plans] and drug manufacturers, wholesalers, or other suppliers of covered outpatient drugs; and
(iii) otherwise interfere with the competitive nature of providing such coverage through such sponsors and organizations.
The pharmaceutical industry is the most profitable industry in all history, and this bill hands them a blank check to be honored by the taxpayers and beneficiaries. And yet the meager benefit provided will continue to keep prescription drugs out of the reach of millions of Medicare beneficiaries because of the lack of affordability.
What input do we have? Rep. Bill Thomas, who is crafting the final legislation, has excluded most of the Democratic members of the joint conference committee from the process. He is even overriding the input of his Republican co-chair, Sen. Charles Grassley. His attitude is expressed well in this quote (Morgan and Eilperin, Washington Post, Oct. 29):
“I don’t think it serves any purpose to attempt to misrepresent or slant or fabricate… to influence outside the negotiating structure. My goal is to make law, not to make myself look good.”
And from the same article:
… Thomas surprised fellow conferees by outlining a proposed agreement for
the bill. He and his staff had written it without outside consultation. “It was a total unilateral move,” one source said. Grassley reportedly was furious.
http://www.washingtonpost.com/wp-dyn/articles/A38004-2003Oct29.html
It’s time to contemplate those cherished words of Abraham Lincoln: … government of the people, by the people, and for the people…
Let’s not let Lincoln down.