Sold Out To Phrma By Senator Baucus, Hundreds of Billions Wasted

Recently, Senator Max Baucus proudly unveiled a new “deal” with the pharmaceutical industry. They committed to reduce the cost of drugs to the American health care system by a total of $80 billion over the next 10 years. Federal government spending would be reduced by only a fraction of that.

Many have hailed this announcement as a great achievement in the effort to reform health care; it is not. The $80 billion is in reality an very tiny drop in the potential savings bucket. There are hundreds of billions of dollars that the federal government could easily save in pharmaceuticals with real reform (allowing the government to directly negotiate the price of drugs). If this “deal” from the pharmaceutical industry is instead of real reform, it is no deal at all. Senator Baucus has not saved the taxpayers money; he has sold them out.

The United States pays more per capita for medical drugs than any other industrialize nation. In 2003, France (the second biggest spender on drugs per capita) paid just 83% of what the United States paid per capita on drugs. Canada paid just 70%, Germany 60%, and Australia spent less than half (48%) of what our country spent on medical drugs.

Even though Canada spent only 70% per capita of what the United States spent on drugs, Canadians on average have 19% more prescriptions filled. Canada spends so much less on medication because it allows the central government to directly negotiate the price of prescription drugs (something which is banned in this country). Patented drugs are on average between 35% and 45% cheaper than here in the United States.

Medicare Part D is the federal program which helps seniors purchase medication. It cost the government roughly $36 billion last year. The program does not allow the federal government to negotiate with pharmaceutical companies, nor create a government-run “public option” as one of the many competing prescription drug plans.

Families USA found that for the 20 most common prescription drugs, the cheapest Medicare Part D plan paid 58% more than the Veterans Affairs (VA). The VA is a large government program which can use its size to directly negotiate with the pharmaceutical companies.

The evidence is clear that if the federal government were allowed directly negotiate drug prices with the pharmaceutical companies, it could dramatically reduce their cost. It is easy to imagine how the federal government could use its power to reduce the price of drugs by 20%-40%.

There are many ways the federal government could drive down the cost of drugs (only some are listed below):

1. It could create a nationwide default “public option” prescription drug plan to compete with private plans as part of Medicare Part D.

2. It could eliminate the Medicare Part D program and give the HHS the power to negotiate prescription drug coverage for all Medicare and Medicaid enrollees.

3. A single government prescription drug plan, which would be open to Americans, could be created to directly negotiate prices.

4. The Federal Employee Health Benefits Program could create a single prescription drug program to negotiate drug prices for all federal employees.

5. The common pratice of re-importating prescription drugs from countries whose governments do directly negotiate prices could be made legal.

Regardless of how the federal government reduces the price of prescription drugs, it could easily reduce the amount it pays for drugs by 20%. Reducing the amount the government pays for drugs by over 40% is well within the realm of possibility.

Using some back of the envelope calculations: A reduction of only 20% in drug prices could currently save the federal government around $13 billion in one year. If it was part of a 10-year $1 trillion dollar health care reform package, it would make the legislation around $150 billion cheaper. *

If the price of drugs in America were on par with Canada, the savings for the government would be roughly $20 billion in one year. If part of a 10-year reform bill it would make the legislation around $250 billion cheaper.

If health care reform could bring drug prices in line with Australia, Netherlands, Sweden, Finland, and Denmark (which spend less than half of what the United States does per capita on drugs) the savings would be almost double.

The pharmaceutical industry's promise to help people save $80 billion over ten years is health system-wide. The savings for the federal government will be only a fraction of that. If we are extremely generous, let's say it would save the federal government $40 billion over the next ten years. That is less than 1/5 of the savings possible if the federal government was able to directly negotiate drug prices and get rates similar to what Canada receives.

What our country does not need is for senators (who have received hundreds of thousands in donations from the pharmaceutical industry) making secret billion dollar deals behind closed doors. What we need is for our government to be finally allowed to use its large market share to directly negotiate with drug companies to save the taxpayers real money. This is not an triumph for real reform, it is a sign that the American people are being sold out on the cheap.

*My calculations can be made available by request. If anyone has a policy study with more refined number I will update my article.