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| posted on Wednesday, February 08, 2006 |
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This article ran in The Washington Post on November 21, 2003 when the changes to the Medicare law was passing in Congress. (Section A04)
Byline: Ceci Connolly, Washington Post Staff Writer
No
industry in negotiations over the $400 billion Medicare prescription
drug bill headed to the House floor today outpaced the pharmaceutical
lobby in securing a favorable program design and defeating proposals
most likely to cut into its profits, according to analysts in and out
of the industry.
If the legislation passes as Republican leaders
predict, it will generate millions of new customers who currently lack
drug coverage. At the same time, drug-manufacturing lobbyists overcame
efforts to legalize the importation of lower-cost medicines from Canada
and Europe and instead inserted language that explicitly prohibits the
federal government from negotiating prices on behalf of Medicare
recipients.
"It couldn't be clearer there is going to be a
positive effect overall," said Dan Mendelson, president of Health
Strategies Consultancy, which bills itself as a think tank and
consulting firm. "The volume will definitely go up. There will be a lot
of people who didn't have coverage before who will have it now and a
lot of people getting an upgrade in terms of coverage."
Democrats
and consumer advocates complain that the Republican-crafted compromise
does little to contain soaring drug costs. They say that by handing the
Medicare drug program's administration to private insurers, Congress
missed a chance to exert pressure on pharmaceutical companies to reduce
prices.
But Republicans and some industry analysts say that
adopting a drug-purchasing mechanism similar to those in corporate
health plans is the best way to extract discounts from drugmakers.
If
Medicare negotiated on behalf of its 40 million beneficiaries, "I
wouldn't be negotiating; I'd just be fixing the price," said Thomas
Scully, the program's administrator. "Let's get seniors organized into
big purchasing pools that get bulk discounts and see how they fare."
Representatives
of the industry's main lobbying arm, the Pharmaceutical Research and
Manufacturers of America (PhRMA), declined yesterday to discuss the
legislation. But the clearest indication that the bill offers a
brighter future for the industry came from Wall Street, where
pharmaceutical stock prices have steadily risen over the past week as
the legislation's prospects for passage improved. Analysts at Goldman
Sachs & Co. project the new Medicare benefit could increase
industry revenue by 9 percent, or about $13 billion a year.
After
objecting for years to proposals to add prescription drug coverage to
Medicare, the pharmaceutical lobby recently shifted positions and
poured enormous resources into shaping the legislation. Since the 2000
election cycle, the industry has contributed $60 million in political
donations and spent $37.7 million in lobbying in the first six months
of this year.
The lobbying continued in earnest this week with a
television and print advertising campaign urging passage of the bill.
In one series of witty commercials sponsored by the industry-backed
Alliance to Improve Medicare, elderly citizens look into the camera and
demand: "When ya gonna get it done?"
One Republican with ties to
the industry said drugmakers eluded the three things they feared most:
legalized importation of lower-cost medicines, many of them patented or
made in the United States; government price controls; and easier market
access for generic drugs that cost considerably less than brand-name
drugs. "In their view, by improving access for all seniors, we will
ameliorate any pressure on the industry toward price controls or
reimportation," the source said.
About 24 percent of Medicare
beneficiaries -- nearly 10 million senior citizens -- do not have any
prescription benefits. Some of them buy medicine at the highest retail
prices. Academic studies and anecdotal evidence suggest, however, that
many go without prescription medicines and would become new customers
for drugmakers if the bill becomes law. The remaining 30 million
Medicare recipients buy some supplemental drug coverage, according to
the most recent government figures.
Even those with some drug
coverage are expected to spend more with the new benefit, said Fredric
E. Russell, whose investment management company owns several drug
stocks. Whenever a new health benefit is offered, he said, patients and
doctors jump at the chance to take advantage of it.
Under the
bill, beginning in 2006, all Medicare beneficiaries would have the
option of buying a drug plan for about $35 a month, plus a $275 annual
deductible. Insurance companies and pharmacy benefit managers (PBMs)
would administer the programs for the government.
The great
unknown is what sort of prices those insurers will ultimately negotiate
on behalf of their Medicare clients, said Kristine Bryan, senior health
care analyst at Brown Brothers Harriman & Co. "Generally, when you
have a large purchaser, you have the ability to demand better pricing,"
she said.
Republican congressional staffers also point out that
because the bill waives a requirement that state Medicaid programs
receive the "best price" available, the new private insurers could save
Medicare $18 billion. It would, however, likely increase states' drug
costs.
Many Democrats say private purchasers have not been as
successful at bargaining as have government programs such as the
Veterans Administration and Medicaid, which secure some of the steepest
drug discounts available.
"We've been going through PBMs for 10
years and nothing's happened except the price of drugs has gone up,"
said Democratic presidential candidate Howard Dean, a physician.
Perhaps
the most striking political victory for the pharmaceutical industry was
the decision to reject provisions that would have allowed Americans to
legally import drugs from Canada and Europe, where medications retail
for as much as 75 percent less than in the United States. Polls show
that an overwhelming majority supports the change, and the House
approved the provision, 243 to 186. But the Bush administration and
pharmaceutical lobby said the move was dangerous and would cut into
future research and development.
The provision was dropped from the bill's final version.
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