Pharma distorts the facts to keep Medicare from negotiating drug prices

In 1967, Richard S. Harris wrote a four-part series for The New Yorker, describing how Medicare came to be enacted.  The leading opponent of that legislation was the American Medical Association.  The AMA's central argument against this valuable piece of legislation was its contention that government-supported health care would pave the way to the horror of socialized medicine.

The principal spokesman for the AMA's fear-mongering claptrap was a Hollywood B-movie actor and TV pitchman named Ronald Reagen.  According to one of the lawmakers who spoke to Harris, the way it turned out was that, "the docs just cried socialism once too often and after a while, people stopped believing them."

Alas, that was fifty years ago, a period when progressive activism characterized the Kennedy-Johnson administrations and the Congress. Although Medicare has proven to be one of the most usefully enduring pieces of 20th century legislation, both the country and the D.C. establishment are now far more reactionary/rightwing.

So while Medicare offers millions of U.S. seniors an island of affordable health care – one that many of us want extended to all Americans – the mood of public-minded, good will that made it possible in the 1960s appears scarce today.

Yet this hobgoblin of socialized medicine, given renewed life by know-nothing Tea Partiers and plutocrat Republicans, still hinders improvements to this country's health care system.

Today the pharmaceutical industry has replaced the AMA as the chief proponent of the view that in health care, it should be every man for himself, the game should stay rigged and the pursuit of profit should trump everything else (no pun intended).

So it came as no surprise last week when Public Citizen, the consumer advocacy group, and Carleton University of Canada published a report that concluded the U.S. federal government could save almost $16 billion a year if Congress allowed Medicare to negotiate drug prices.

Their 16-page report is worth reading, if only because it compares U.S. drug spending to that of 31 other advanced countries in the Organization for Economic Cooperation and Development. The report also compares Medicare prices to what Medicaid and the Veterans Administration pay.

It turns out that 27 of the 31 advanced countries in the OECD pay less than half of what the U.S. pays for the same drugs.  Our per capita costs for buying drugs are more than twice the average paid by OECD countries.

Medicare was specifically prevented, by law, from negotiating drug prices in 2006 when George Bush and the Republican-minded Congress made that concession to pharma in return for the industry's promise not to oppose the Medicare Part D legislation.

After Public Citizen published its findings last week, the Wall Street Journal 's Ed Silverman obtained the reactions of pharma's lobbying group, the PhRMA.

Their answers included many of the same boilerplate statements that pharma has been proclaiming for many years, most replete with error, distraction and falsity.

Here are paraphrases of the PhRMA statements and appropriate rejoinders to each:

1. Many Medicare Part D medicines include rebates that are negotiated by private plan sponsors and these often amount to as much as 20 to 30 percent.

Reality. Even with the rebates Medicare Part D receives, it spends almost twice the median amount paid by the 31 OECD countries for brand name drugs. Silverman adds, "based on other analyses, even within the U.S., Medicare Part D pays on average 73 percent more than Medicaid and 80 percent more than [the VA] for brand-name drugs." The latter two agencies are permitted to negotiate drug prices.

2. The Public Citizen/Carleton authors tried to make their case by discussing patented brand-name products, but four out of five prescriptions filled under the Medicare Part D program are for lower-cost generic drugs.

Reality. In terms of the number of prescriptions, that's true, but costs are the topic of this conversation. The data supplier IMS determined that, at most, generics account for one-third of drug costs while branded medications suck up the rest.  Within the vastly more expensive branded segment, the fastest cost growth is coming from super-expensive, specialty brands.

3. By opening the door to price negotiations, the pharma companies would have fewer incentives to offer favorable rebates to Medicare Part D plan sponsors and this would ultimately lead to higher premiums.

Reality. The rebates obtained by Medicare plan sponsors amount to a pittance.  Public Citizen and Carleton showed that the rebates Medicare Part D obtained from brand-name manufacturers represented only 17% of the manufacturers' prices. If Medicare had been able to negotiate drug prices the way that Medicaid is allowed, it would have saved $15.2 billion a year on the price of brand-name drugs and if the law had permitted Medicare the same discretion as the VA, it would have saved $16 billion a year.

4. Spending on retail prescription medicines has consistently accounted for just 10 percent of U.S. health care spending.

Reality. The pharma lobby here ignores the point that a health care administration must control costs when and where it is able to do so without compromising quality or access to care. Admittedly, hospital and physician/clinical services represent bigger slices of the health cost pie, but the comparatively thinner margins among providers do not permit major reimbursement cuts there at the present time. The sorts of paradigmatic changes to medical practice envisioned by the Affordable Care Act (e.g., replacing fee-for-service with outcomes-based reimbursement) can allow for cutting provider payments in the future. On the other hand, pharmas derive enormous profit margins, partly as a result of legislation that prevents buyer agencies such as Medicare from functioning in the manner of normal market participants. Changes to that giveaway setup can be made right now without hurting anything beyond the multimillion-dollar compensations to pharma's C-suite executives.

5. Removing unconscionable profits from pharma will dry up R&D.

Reality. The Public Citizen/Carleton paper reveals the distortion of this claim by noting that seven other nations (Switzerland, Denmark, Belgium, United Kingdom, Slovenia, Sweden and Germany) have higher ratios than the U.S. of pharmaceutical R&D spending to branded drug spending.

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Pharma likely figures that its standby evasions and distortions have been accepted over the years, so they will continue to use them until the heat from such lying exceeds its effectiveness.

Don't let them get away with it.

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