Drug Costs: A Traversal Up & Down the Pharmaceutical Industry

Table of Contents

Let us double back to our discussion of drug costs and the non-interference clause in Medicare Part D. I’ll dedicate some more time to the Rigged Economy Supply Chain (RESC) traversals. They are foundational to understanding how economic rigging occurs.

The HHS Secretary (as the representative of the government) is currently banned from negotiating due to the aforementioned clause introduced in the Medicare Modernization Act (MMA) of 2003. According to the New York Times, “President Bush threatened on Thursday to veto legislation that would require the government to negotiate with pharmaceutical companies to obtain lower drug prices for Medicare beneficiaries.”

Medicare Drug Prices: A Traversal from the Top Down

With this traversal, we begin from the top of the RESC and go down from there. We will, in other words, look at how crony pharmaceutical corporations target legislators and/or regulators (top) in order to rig the purchasing prices of prescription drugs for consumers (down). 

As we have discussed earlier in this mini-book, bad actors have established the vicious cycle depicted below.

Cycle of theft via rigged layer

A major part of what perpetuates this cycle is what is known as the ‘revolving door’—where legislators/regulators essentially switch places with lobbyists and vice versa. When a lucrative lobbying position awaits those who use their legislative or regulatory power to aid rigged schemes, it’s hard for us to trust the politicians and regulators…

Whose interests are they protecting? The public’s, or corporations?

The Curious Case of Billy Tauzin

Thomas Oliver, Phillip Lee, and Helene Lipton chronicle the political history of Medicare and prescription drug coverage. As it pertains to the MMA, Republicans, and Democrats had their reservations about Medicare Part D as a whole, not only about the non-interference clause. Barring consumers from reimporting drugs at a cheaper price from overseas, for example, was an objection that has persisted to this day.   

Oliver et. al document the curious events of the House vote, writing: 

The reforms appeared to be dead when, at the end of the normal 15 minutes allowed for the voting, the bill was losing by 15 votes. At that point, Hastert and the rest of the Republican leadership went into action and eventually faced a razor-edge margin of 216 to 218. It stuck there while HHS secretary Tommy Thompson, defying House custom, moved onto the floor and the leaders roused President Bush to make another half-dozen calls to convince a handful of their colleagues to change their votes. A Republican who is retiring in 2004 claimed he was offered $100,000 to help his son run for his seat on the condition that he switch his vote.

According to 60 Minutes, former Rep. Billy Tauzin “shepherded” the MMA and the non-interference clause, in particular, through the legislation process. Tauzin received the lionshare of the credit for getting the MMA passed while rumors about his impending career change circled. And sure enough, he soon resigned from his position in Congress to become, not just a lobbyist, but the president of the Pharmaceuticals Research and Manufacturers of America (PhRMA).  

The Affordable Care Act (ACA) & Lobbying

Considering the immediate pushback against the non-interference clause when Medicare Part D was announced, one would expect the issue would have been a significant talking point with Barack Obama’s Affordable Care Act. 

However, according to London School of Economics Professor Olivier Wouters’ study on the pharmaceutical and health product industry’s lobbying expenditures and campaign contributions in the U.S, major health organizations PhRMA and the American Medical Association (AMA)) approved of the ACA despite their historical opposition to government interventions in drug markets.   

“…[A]lthough both groups [PhRMA and American Medical Association] supported the Affordable Care Act, they did so only after receiving commitments from the Obama administration and former Senator Max Baucus (D, Montana), then chair of the Senate Finance Committee, that […] Medicare would not be allowed to negotiate drug prices, and Medicare payments to physicians would not be reduced.”

To have the support of PhRMA, the biggest lobby in Washington, Obama received a major push in his efforts to reform health care. NPR covered the not-so-secret negotiations involving large pharmaceutical companies (e.g. Pfizer and AstraZeneca) that gave rise to the enactment of the ACA. You can also read up on the extensive donations Max Baucus received from the health industry here.  

Wouters asserts that between the years 1999-2018, PhRMA, the AMA, the American Hospital Association, and the Blue Cross Blue Shield Association were responsible for a disproportionate share of spending on lobbying. This proves especially significant as Wouters reveals two more relevant and crucial findings that provide a reason why the non-interference clause was not struck by the ACA:

“Contributions [from individual and political action committees (PACs) in the pharmaceutical and health product industry] to presidential candidates totaled $22 million. Of the $19.3 million contributed to these candidates, the top recipient was Barack Obama ($5.5 million), followed by Hillary Clinton ($3.7 million), Mitt Romney ($3.0 million), and George W. Bush ($2.4 million). The next 16 candidates combined received $4.7 million.”

If you were wondering about Tauzin, he was still the head of PhRMA, and headed those ACA negotiations with Obama. It should not come as a surprise that the man who championed the non-interference clause would allegedly protect a law forbidding the government to ‘interfere’ in drug price negotiations.  

Drug Costs? 

Here, we need to expand the conversation to include drug costs beyond just Medicare Part D. Why? Drug costs, in general, affect how much private providers will have to negotiate down from. That means, if pharmaceutical companies have rigged the system as a whole through price fixing or pay for delay deals, then Medicare Part D beneficiaries will necessarily have to pay more. 

As education organization Q1Group states, “Higher retail drug costs mean you may pay more for your drug coverage and move faster through the phases of your Medicare drug coverage…Retail drug costs determine the time you spend in the Initial Deductible. If your Medicare prescription drug plan has an initial deductible, retail drug prices will affect how long you stay in the deductible.” (More on Medicare Part D phases in the next section).

Research

According to an international survey conducted by the International Federation of Health Plans (IFHP), drugs routinely cost more in the US than in any of the eight other high-income countries involved (Australia, Germany, Holland, New Zealand, South Africa, Switzerland, the United Arab Emirates, the United Kingdom).

drug price in 2007

The Ways and Means Committee, in 2019, published a report making the following claims:

  • Americans pay on average nearly four times more for drugs than other countries – in some cases, 67 times more for the same drug.
  • U.S. consumers pay significantly more for drugs than other countries, even when accounting for rebates.
  • The U.S. could save $49 billion annually on Medicare Part D alone by using average drug prices for comparator countries.

Medicare Part D Phases

If the current model were working properly, would Americans be paying nearly four times more for drugs than citizens of other high-income countries. Free Market competition should be occurring here—i.e. vying for the customers’ business by providing the most effective medicines at a reasonable price that’s sustainable for both parties. 

Let’s see how US drug costs affect those enrolled in Medicare Part D.

Medicare Part D

Quite simply, the more the drugs cost, the quicker you will get to catastrophic coverage for that year. That might sound like it has its perks (particularly, that 95% of costs will be paid by the plan and government). But you’ve already had to spend $6,551 to even reach that point. 

Deputy director of the Kaiser Family Foundation’s Medicare Program, Juliette Cubanski, was quoted in a CBS News article: “At first, 5 percent sounds reasonable…and for many drugs it is. But 5 percent of thousands of dollars get unaffordable very quickly.” 

“…there’s no limit for out-of-pocket spending once Medicare recipients hit the catastrophic phase. In fact, for many of the specialty-tier drugs included in the study, the majority of out-of-pocket costs will likely be incurred during the catastrophic phase, said Cubanski, noting that half of Medicare beneficiaries have an average annual income of $26,000 or less.”

Are there drugs that cost Medicare Part D beneficiaries thousands of dollars, though? 

Specialty Drugs

Medicare defines ‘specialty tier drugs’ as drugs that cost more than $670 per month in 2019. They account for over 20 percent of total Part D spending.

Medicare Part D benificiaries

From the Kaiser Family Foundation(KFF)

According to the KFF, “Not all specialty tier drugs are covered by all Medicare Part D plans unless they are in one of the six protected classes (such as cancer drugs)…the median total annual cost when not covered ranges from $26,209 for Zepatier [hepatitis C treatment] to $145,769 for Gleevec [leukemia treatment]—amounts that far exceed the limits of affordability for the vast majority of Medicare beneficiaries.”

The End of the Chain: What This Means for Citizens

So, let’s say we have a fellow citizen who is a beneficiary of Medicare Part D and needs specialty drugs in order to live. They must buy the medicine regularly. Consider the thousands of dollars necessary to purchase speciality drugs. And then consider how half of Medicare beneficiaries have an average annual income of $26,000 or less. Even consider those with a higher-than-average annual income among Medicare beneficiaries. Do you think they can afford the drugs they need to survive? 

They will have to ration their medication in order to at least have some way to combat the illness. 

Going back up the rigged supply chain, citizens pay rigged prices for the medicines they need to live,  bringing unethically boosted profits to crony pharmaceutical companies (not all of them act unethically, of course). Some of that extra money increases the returns for executives and owners, and the rest then goes back to influencing politicians. To add insult to injury, the profits aren’t even going to improving salaries for their workers. Thus, the vicious cycle perpetuates.  

Drug costs need to go down. The answer may not necessarily be striking the non-interference clause, but perhaps the answer lies in enforcing reference pricing based on what other high-income countries pay for the same drugs. Regardless, we cannot live in a world where people cannot afford life-saving treatment and pharma continues to unethically profit. It is if you didn’t know, one of the most profitable industries

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Standard Disclaimer

The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.   

Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the book. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.