Drug-Makers Celebrate—Prematurely?

 On Alternet, Bill Moyers summarizes what happened in D.C. last week: “Push finally came to shove in Washington . . . .as the battle for health care escalated from scattered sniper fire into all-out combat.” 

Moyers is right. But I’m more optimistic than he is about how this battle will end.
As usual, Moyers, pulls no punches: “As the Republicans fired away, big business stepped up the attack too, their lobbying and advertising guns blazing. The Chamber of Commerce, for one, announced a major campaign of rallies and print and Internet ads to crush the White House plan for a competitive public option allowing consumers to choose between a government plan and private health insurance . . .

“Supporters who want to scrap the present system for fundamental change are staring glumly though the fog of war at a battlefield in total disarray.

“They fear that in the White House's desire to get a bill — any bill – passed by Congress, it will have been so compromised, so bent to favor the big interests, that it will be less Waterloo than watered down, a steady diluting of the change they had hoped for and that America needs."

Moyers points out that some in the pharmaceutical industry seems to believe that victory is at hand: “The big drug companies are already so pleased with what they've been promised that they've brought back Harry and Louise — the make-believe couple who starred in TV ads that helped torpedo the Clinton health care plan — but this time they're in favor of reform.”

Moyers cites reports from the drug industry's trade group PhRMA (the Pharmaceutical Research and Manufacturers of America) and the drug company Pfizer which reveal that the drug industry spent “more money than other health care organizations on lobbying in the second quarter of this year’ – $6.2 million from PhRMA, $5.6 million from Pfizer.

“Including its latest report, PhRMA has now spent $13.1 million lobbying so far this year. Pfizer has reported $11.7 million in lobbying expenses for 2009.

“This is part of the reason, as Alicia Mundy and Laura Meckler recently wrote in The Wall Street Journal, that ‘the pharmaceuticals industry, which President Barack Obama promised to 'take on' during his campaign, is winning most of what it wants in the health-care overhaul.’

“Their story describes ‘a string of victories’ plucked from the Senate Finance Committee by drug company lobbyists, including no cost-cutting steps, no cheaper drugs to be allowed across the border from Canada, and no direct Federal government negotiations with the pharmaceutical companies to lower Medicare drug prices.

“And that's not all. The Senate Health Committee is giving the biotech industry monopoly protection against competition from generic drugs for 12 years after they go on the market.

“No wonder the cost of reform keeps going up and up and up. Could it be.” Moyers asks, “that Harry and Louise are happier because, this time, they're in on the deal?”

Drug-Makers Account for 16 percent of Health Care Spending

I would add that the drug industry plays a major role in driving health care inflation. Granted, last year Americans bought fewer prescription drugs than the year before –the first such decline in a decade. (More Generics are coming to market and prescription drug makers are having a hard time finding new products to peddle to the public.) But the Kaiser Family Foundation reports that total spending on prescription drugs still climbed in 2008 because drug-makers boosted prices for brand-name drugs by an average of 8 percent. According to Kaiser, price hikes are likely to mean that spending on drugs will rise by 3 percent to 5 percent in 2009, and by another 4 percent to 6 percent in 2010. That’s a 15 percent to 19 percent increase in just three years.

Some would have you believe that drugs prices play only a minor role driving health care premiums skyward because prescription drugs account for “just 10 percent to 11 percent” of the nation’s health care bill. But that figure refers only to the drugs that you and I buy retail, in a pharmacy. It does not include the many very pricey medications that are administered in a hospital, in a doctor’s office, or in a nursing home.

Moreover, pharmaceutical companies also have become big players in the medical device business, turning out everything from stents to artificial knees. And, despite the economic slump, “The relatively non-discretional nature of medical devices should support demand growth for this part of the healthcare industry in 2009," Fitch, a credit-rating agency reassured investors at the end of 2008.  

In other words, if your doctor tells you that you need a
implantable cardioverter defibrillator (ICD), you have no choice, whatever the price. This is why manufacturers in the health care industry have so much pricing power. They can charge whatever they like. As Fitch points out, manufacturers who produce stents and ICDs enjoy “high profit margins.”

Add the devices to all of the medications in Pharma’s portfolio, and it turns out that the drug industry gobbles up roughly 16 percent of the $2.6 trillion that we, as a nation, spend on healthcare. And Americans pay more for these products than patients in any other part of the world.
This is in part, the New York Times’ “About.com: Patient Empowerment” website points out, because drug companies pass on the cost of promotion and advertising drugs and devices in the U.S:

“If you have watched TV or opened a magazine or newspaper in the past several years, you have seen drug commercials and ads which cost manufacturers, and ultimately patients as consumers and taxpayers, billions of dollars each year.” Keep in mind that the U.S. and New Zealand are the only countries on the globe that allow drug ads on television. Consumers in other countries do not have to pay for marketing that, critics say, interferes with the patient-doctor relationship.

The industry’s defenders like to argue we have to pay more for drugs so that the companies can invest in research and development. The truth is that the pharmaceutical industry spends twice as much on marketing and advertising as it spends on research. When it comes to new medications most ground-breaking work is done by NIH, using tax-payer dollars. Drug-makers come into the picture only when it seems pretty clear that there is good money to be made on the new product. Big Pharma does not like to take big risks.

As Dr. Marcia Angell explains in The Truth About the Drug Companies, after Ronald Regan won the White House, Congress passed the Bayh-Dole Act, a new set of laws that permitted and encouraged universities and small businesses to patent discoveries from research sponsored by the National Institutes of Health (NIH). Research paid for by the public to serve the public instantly became a private, and salable good—one that is producing drug sales of more than $200 billion a year. I’ve written about the Bayh-Dole Act here .

Pharma May Be In For a Surprise

But as House Speaker Nancy Pelosi (D. Calif) suggested in Sunday’s Washington Post, the for-profit health care industry’s “glory days” may be coming to an end. Let me suggest that Pharma may be a little too confident about that “string of victories plucked from the Senate Finance Committee.” That bill still has to be reconciled with the Senate HELP bill—and the House bill.

In that same article, Post staff writer Ceci Connolly observes that the mood in Washington is changing: “For months, the White House assiduously courted industry trade groups, attempting to neutralize historically powerful opponents of change. But the talking points for the August recess have moved to a sharper critique of business interests. House Speaker Nancy Pelosi and top lieutenants have warned that they are not bound by deals the White House struck with drug-makers and insurers.”

Nor did I hear the White House make any explicit promises to Pharma.

What I did hear about was an amendment to the House bill that liberals proposed on Friday. It would authorize the government to negotiate prices in the Medicare prescription drug program, a suggestion long opposed by drug companies and insurers that administer the program. Friday, that amendment was adopted 32 to 23.

Connolly also quoted Sen. John D. Rockefeller IV saying that Obama should be "very aggressive" this month in rebutting attacks by well-funded interest groups. "He's got to get tough," Rockefeller said, "maybe tougher than he's ever been." Last week Rockefeller sounded discouraged and depressed. This week he sounds angry.

Finally, Connolly observed: “The tensions have prompted Senate Democratic leaders to revive threats to use a parliamentary procedure to force health-care legislation through on a simple 51-vote majority rather than a filibuster-proof 60 votes.” Today, on Politico.com Glenn Thrush also noted that “reconciliation is getting a second look.” This might not be the ideal way to pass the legislation, but as I have argued in the past, real health care reform is too important—to the economy as well as to the society—to become focused on process. Results are what will matter.

20 thoughts on “Drug-Makers Celebrate—Prematurely?

  1. Obama is correctly focusing on the for profit insurance industry as his prime target.
    But Big PhRMA is on the ropes for many reasons.I am advising anyone I know to get out of that industry if they are employed by it. And I recommend to all to divest themselves of any stock holdings.
    Also as a physician I am constantly helping patients limit their use of meds.
    This is a former miracle industry gone completely sour because of excess and greed.
    Dr. Rick Lippin

  2. I hope you’re right. If it comes to a parliamentary maneuver, so be it. There is nothing sacred about a super majority.
    In other news, I made arrangements with my local library to order your dvd when it’s available. You need an ad (with links) in your sidebar along with the books.

  3. There is no doubt that Medicare and other government agencies should ask for competitive bids from drug manufacturers.
    The drug companies will complain that this will reduce the amount of money available for new drug research, and there may be some truth in this. This objection could probably be overcome by increasing federal research money.
    We should also test new drugs against existing drugs to see if they are really any better before adding them to the formulary.
    The drug companies and device makers fear both of these things – as well they should.

  4. Legacy-
    Legacy– I agree on all counts.
    As for the reserch now being done by Pharma, most of it is just “me too” research trying to find seemingly new versions of existing drugs that can be sold in large quantities(for allergies etc.) or sliglhtly new versions of cancer drugs that might give the patient an extra two weeks .. . and could be touted as possible better than an existing drug that gives the average patient an extra 3 weeks . . .
    Hootsbuddy– Yes– a simple majority, 50 votes should be acceptable.
    As you say there is nothing sacred about the number 60– why not make it 65?
    In a democracy, a majority is usually considered sufficient. The Senate rules allowing filibusters simply obstruct legilsation–often good legislation–that a majority of senators want to pass, and that special interest groups oppose.
    You’re right–we should have a permanent link to the websites where one can purchase or rent the DVD right above the books.
    Dr Rick–
    POlitically, I think it makes sense to focus on insurers because a) they are the ones trying to block the public option–which is very important for true reform and b) the American people hate health insurance companies.
    But ironically, the insurers’ administative costs and profits total only about 5% of the $1.6 trillion we spend on healthcare. And those administrative costs are fairly flat–they’re not rising by 4% to 8% every year.
    By contrast, pharam accounts for roughly 16% of health care spending and prices of their products are climbing every year. They are healping to drive healthcare inflation . .

  5. The issue isn’t that insurance companies are evil. It’s that they need to be profitable, according to Wendell Potter who worked in the health insurance industry for more than 20 years. They have a fiduciary responsibility to maximize profit for shareholders.
    Potter reasoned that we generally like markets because the profit incentive spurs useful innovations. But in some markets, that’s not the case. We don’t allow a bustling market in heroin, for instance, because we don’t want a lot of innovation in heroin creation, packaging and advertising. Are we really sure we want a bustling market in how to cleverly revoke the insurance of people who prove to be sickly?
    As a rule, the “profit” motive and “free” enterprise are hard to beat when it comes to systems for allocating resources in a free society, but some institutions like churches, education and healthcare are and should be exceptions to that rule.

  6. Gregory–
    You wrote:
    “As a rule, the ‘profit’ motive and ‘free’ enterprise are hard to beat when it comes to systems for allocating resources in a free society, but some institutions like churches, education and healthcare are and should be exceptions to that rule.”
    Very well put. And I agree totally.

  7. Pharma could always cancel the DTC campaigns and put that money into R&D where it belongs.

  8. Very careful about the heart attack studies in findrxonline indicate that we must be careful and avoid any situation that we regret later, remember that those increases in weight and which have much dependence on cigarette and alcohol are the most vulnerable to a sudden heart attack care.

  9. I don’t have any great love for insurance companies, but I don’t see how a public (assistance) option is critical to reform. It seems that severing the tie between insurance and employment, rationalizing the tax treatment of health insurance and medical expenses generally, and providing basic coverage for the uninsured are more important.
    It is impossible to reduce the cost without high deductable catastrophic insurance. People paying for doctor’s bills themselves would lower costs. How will anything else lower prices, without relying on the untested powers of wise experts?
    To make medical care more expensive, we must LOWER our standard of care. This means legal reforms.
    If we are to have New Men, as it appears we are, let them prove the effectiveness of their cost cutting programs on the Federal workforce, including our elected representatives.

  10. Legacy Flyer said, “We should also test new drugs against existing drugs to see if they are really any better before adding them to the formulary.”
    As long as “new” drugs are approved by the FDA on the basis of being at least as good as another drug and doing what the manufacturer claims they will do (based on the “evidence” that the manufacturer chooses to share with the FDA), they are on the market. However, this is not evidence that they are a valid treatment for a given condition or disease. Drugs, “new” or otherwise, should be tested against no treatment as well as against other modalities. There is a complete void in our system in this respect. According to the Dartmouth Atlas research, less than 60% of medical care in the US is based on any scientific knowledge at all.

  11. ACarroll, Christopher, NG
    ACarroll–Actually, the FDA does Not require that drugs be tested against existing treatments for the same condition. The FDA requires only that the new drug be tested against a placebo, proving that it is “better than nothing.”
    I agree, new drugs should be tested against existing treatments and against placebo.
    And we shouldn’t be dependong on what info Pharma “decides” to share with us.
    These tests should be overseen by independent resereachers who have no financial stake in the outcome.
    We have a much research showing that when people have a high-dedutible catastrophic plan they are just as likely to forego much-needed care as they are to forego unncessary care.
    Even if they KNOW that they need the care many families cannot afford to use their high-deductible insurance.
    I have a feeling you don’t know many famiies earning, say, $50,000, joint income, before taxes.
    But they are part of our middle-class.
    And many don’t have $300 lying around to pay for a doctor’s visit, the lab tests the doctor may order and the medication he prescribes. So they don’t go to the doctor.
    A great many American families are forced to live paycheck to paycheck.
    This is why the House bill calls for no co-pays for
    primary care.
    NG– Thanks for the link.
    Another example of corruption in Pharma.
    Why the White House would make a “deal” with these people (particuarly Billy Tauzin, who is a crook) is beyond me.
    Doc 99–
    Even better, Pharma could cancel DTC campaigns and use the money to lower drug pricess.
    (The R&D that large drug companies are doing these days jsut isn’t very useful–mainly they’re tweaking existing drugs, putting them in a new package, adn calling them “new”
    The pipeline is dry because they have picked the long-hanging fruit.
    We arent’ going to get many more breakthroughs until we get to a new stage of drug reserach, and that will happen at NIH, or at very small entrepreneurial companies focusing on a single drug–the large corporations like to play it safe..

  12. Maggie:
    If people don’t have $300 lying around to pay for irregular medical expenses, how are they going to afford the premiums, which are regular?
    Don Levit

  13. Don–
    If you look at the legilslation, you’ll see that both low-income families and middle-income families (like my household earning $50,000 joint example) will be receiving subsidies.
    Upper-middle-class and upper-class households won’t receive subsidies, but the middle-class will.
    In addition most middle-class families are already paying something for health insurance today–even if they have insurance through their employer, lower-paid empolyees usually have to pay 25% to 40% of the premium. (Only upper-class employees are likely to have employers who pay 70% to 100% of the costs.)
    So what they pay now is already built into their expenses . In this case, their share of the premium is deducted from the pay-check that leaves them living pay-check to pay-check.
    Having a high deductible and suddenly needing to go to the doctor is a surprise that they cannot afford.
    The majority of Americans have little or no discretionary income–something that it is easy to forget if you and everyone you know live in households where joint income of , say, $100,000 is considered “normal”. It isn’t. $60,000 is median– half of all Americans live in households that earn less.

  14. Maggie:
    If we assume you are correct about the middle class being stretched to the limit (and I believe you are), wouldn’t it be more efficient to subsidize the irregular expenses rather than the regular premiums?
    Having higher deductibles and lower premiums makes the premiums more affordable, with lower subsidie. Isn’t it more efficient to regularly save on subsidies of premiums?
    If people need assistance paying $300 bills, why not extend the irregular subsidy to help them?
    Don Levit

  15. Don–
    Because we don’t want people to get “irregular care”– we want them to get regular, preventive care and chronic disease management.
    This is cheaper for all of us and better for our health.
    In European countires where the overall health of the population is highest (Sweden, etc.) there is “first dollar” coverage for most care.
    This encourages people to
    go for regular care. Cervical cancer is virtually non-existent in these countries because everyone goes for Pap Smears and OBGYN exams–which are free. No co-pays.
    That’s what the House bill would do for primary care here– No co-pays (this includes private insurers.)

  16. Maggie:
    First dollar coverage with no co-pays, and a community-rated premium, will produce a lot of subsidies for very high premiums, far past the middle income bracket.
    Subsidizing already too-expensive premiums will merely sustain the unsustainable premiums.
    Don Levit

  17. “Actually, the FDA does Not require that drugs be tested against existing treatments for the same condition. The FDA requires only that the new drug be tested against a placebo, proving that it is “better than nothing.””
    Yes, that’s what I said. Older approved drugs also have to meet the standard of “better than nothing,” so, if a new drug meets the same standard, then they are “at least as good as another drug” for the same condition (this says nothing about the safety of drugs over time or their interactions with other drugs patients may be taking). The FDA does not require head-to-head trials against other approved drugs (although many trials are designed to do that) nor head-to-head trials against other modalities–although if you look at the http://www.clinicaltrials.gov database, you will see that more such trials are being funded, but this has started only recently.

  18. Pingback: Angry Bear » Insurers “Had a Seat at the Table” when Reformers Hammered Out the ACA, but Things Didn’t Work Out Quite As They Expected . . . -