Continued from last post.
Medicare is Part of the ProblemMedicare was signed into law in 1965. At the time, the House Ways and Means Committee predicted the program would cost $12 billion in 1990. By the time 1990 rolled around, the actual cost was $110 billion. This year, Medicare costs are estimated to hit nearly $600 billion. As if stuck in an infinity loop, Medicare and Big Pharma (which has successfully manipulated the political system to their unbridled advantage) drive health care costs ever skyward.
As opposed to other countries, American laws actually prevent the government from restraining drug prices. Federal law even prevents the single largest drug buyer – Medicare – from negotiating drug prices. This is a perfect example of how Big Pharma has successfully manipulated laws in such a way that they can operate completely unrestrained in the US, under the flimsy argument that high prices and profits are required in order to fund costly research to develop potentially groundbreaking drugs to treat our ever-proliferating ills.
The only thing Medicare is allowed to do is to add six percent on top of the average sales price drugmakers sell the drug for to hospitals and clinics.
However, Congress does not control what drugmakers charge for their drugs. Pharmaceutical companies are allowed to set their own prices, and when it comes to one-of-a-kind drugs like some cancer drugs, the safeguards built into a free market system disappear, making price setting anything but fair.
Pharmaceutical companies also give rebates to hospitals to create incentive to dispense the drug, as the hospital can then make a greater profit. But since hospitals around the country not only get the same drug at varying rates, and the “average sales price” Medicare bases its payments on doesn’t necessarily reflect these rebates, the base price Medicare uses is oftentimes not very average at all... In some cases, this can result in a hospital still making upwards of 50 percent profit on what Medicare pays for the drug!
In the example Brill includes in his report, a cancer serum called Flebogamma costs the manufacturer an estimated $200-300 to collect, process, test and ship. According to the drugmaker, the average sales price for the drug is $2,003. Sloan-Kettering bills $4,615 for the drug, which Medicare then cuts down to $2,123 ($2,003 plus 6 percent).
“In practice, the average sales price does not appear to be a real average. Two other hospitals I asked reported that after taking into account rebates given by the drug company, they paid an average of $1,650 for the same dose of Flebogamma, and neither hospital had nearly the leverage in the cancer-care marketplace that Sloan-Kettering does. One doctor at Sloan-Kettering guessed that it pays $1,400. ...So even Medicare contributes mightily to hospital profit – and drug-company profit – when it buys drugs,” Brill notes.
Further adding to the problem of unrestrained costs is the fact that Medicare is not allowed to pay attention to comparative-effectiveness research. What this means is that if two drugs are found to be of equal effectiveness but one costs far less, Medicare is not allowed to make the decision to reimburse for the lower priced drug only.
Americans Pay 50 Percent More than Other Countries for Identical Drugs
As a result of laws and regulations preventing the US government from reining in drug prices like other nations do, drugs are wildly overpriced in the US. Overall, Americans pay 50 percent more than other countries for identical drugs. This year alone, the US will spend more than $280 billion on prescription drugs. If Americans paid the same prices other countries pay for the same products, we’d save about $94 billion a year! The explanation given by the pharmaceutical industry when confronted about this price difference is that:
“US profits subsidize the research and development of trailblazing drugs that are developed in the US and then marketed around the world.”
But, as Brill states, should a country with a health-care-spending crisis really subsidize the rest of the developed world? Who made that decision? Furthermore, the numbers tell us Americans really do not need to pay such inflated prices in order to guarantee continued drug research and development:
“According to securities filings of major drug companies, their R&D expenses are generally 15% to 20% of gross revenue... Neither 5% nor 20% is enough to have cut deeply into the pharmaceutical companies’ stellar bottom-line net profits. This is not gross profit, which counts only the cost of producing the drug, but the profit after those R&D expenses are taken into account... All the numbers tell one consistent story: Regulating drug prices the way other countries do would save tens of billions of dollars while still offering profit margins that would keep encouraging the pharmaceutical companies’ quest for the next great drug.”
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