There Goes Your Magic Savings From The PhRMA Deal

The New York Times is reporting that the drug companies have dramatically jacked up the prices of their medications this year to lock in profits before reform starts.

In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That will add more than $10 billion to the nation’s drug bill, which is on track to exceed $300 billion this year. By at least one analysis, it is the highest annual rate of inflation for drug prices since 1992.

No one should be surprised by this. This is what PhRMA has done for years.

“When we have major legislation anticipated, we see a run-up in price increases,” says Stephen W. Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota. He has analyzed drug pricing for AARP, the advocacy group for seniors that supports the House health care legislation that the drug industry opposes.

A Harvard health economist, Joseph P. Newhouse, said he found a similar pattern of unusual price increases after Congress added drug benefits to Medicare a few years ago, giving tens of millions of older Americans federally subsidized drug insurance. Just as the program was taking effect in 2006, the drug industry raised prices by the widest margin in a half-dozen years.

In effect, PhRMA basically nullified any “cost savings” from their secret deal with the White House. Even if the growth in drug prices returns to a normal rate of growth after reform passes, by setting a high base price from which prices will grow, the drug industry will still bring in billions more.

This is just one of the major problems with the White House's secret deals with the different industries. They agreed to reduce federal spending by a set amount less than would “normally be spent without reform.” All the industries need to do is then jack up prices right before reform starts to inflate the projections of what would normally be spent without reform. If the Obama administration were serious about bringing down health care costs, they would have pushed for agreements to support proven mechanisms to bring down cost instead of arbitrary number amounts.

Direct Medicare drug price negotiating, drug re-importation, a centralized provider reimbursement negotiator--these are real changes that would bring down cost and help negate the incentive to jack up prices right before reform. On the other hand, this deal with PhRMA is basically an elaborate shell game masquerading as reform.