Posted by MataHarley on 8 November, 2008 at 1:39 pm. 46 comments already!


There are many issues where Obama and McCain supporters live on opposite ends of the spectrum. But there is at least one where most of the populus… and if you read their campaign promises, the DNC and GOP candidate themselves… were on the same page. And that is on the price of prescription drugs in the US.

For the young and healthy, prices of medications seem low priority. For a nation of boomers, coming into their golden years, this is a looming… if not already omnipresent…. reality already.

The top three profit industries in America are pharmaceuticals, investment banking and oil/energy. Contrary to popular belief, the pharma industry held the #1 position thru most years historically, with oil coming in third. Needless to say investment banking will be losing that lofty status in the wake of our current economic status.

Even the most sensible citizen should be able to acknowledge that profit is integral to expansion of the business. And in the case of pharmas, that would mean the R&D/patent/development process necessary for new product… not an inexpensive path in itself.

So the argument seems simple on the surface… why is it so expensive to buy pharmas in the US compared to the rest of the world? And can we achieve competitive prices without risking R&D and development of new and better product?

I’ve been taking a crash course in pharmaceuticals, research, and drug manufacturers… and our recent Congressional history affecting the prices to the end consumer. What I found was surprising… and should turn out to be perhaps the second issue (the bailout being the first…) uniting the nation’s population, regardless of party affiliation…. provided they are well informed on the history of reform, and the nuances between each party’s suggested “cure”.

What I’ll also expect to hear is the typical blaming of the other party. Unfortunately, from what I can see … both in financial support, and deliberate thwarting of legislation… there is ample culpability to be borne by both sides. So allow me to pass on what I’ve learned… and then let ‘er rip in the comments.


In 2003, Bush championed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, sponsored by Dennis Hastert and 20 GOP co-sponsors. The bill passed the House, mostly along party lines. It was subsequently sent to the Senate, where it was approved by unanimous consent.

Then came reconciling the differences between the Senate and House versions: resulting in a Dec 8th, 2003 enactment of the bill, with final House votes as the Yeas and Nays: 220 – 215, and a Senate vote of 54 Ayes, 44 Nays, 2 Present/Not Voting.

I only found two floor speeches involving the dissention at that time. Sen. Akaka (HI-D) wanted to make sure that generic drugs could be brought to the market in a timely fashion, stated the bill’s language prevented Hawaii from obtaining its DSH allotment as long as the QUEST program remains in place.. Sen. Daschle (SD-D) focused on drugs used to create meth were a danger in his rural state.

What I see missing from the debates then is what our commenter, Larry Weisenthal, and founder of the Weisenthal Cancer Group in Southern California, speaks of today… and that is the ability of the DHS Secy to negotiate the price of drugs directly with the pharmas.

A huge component of the runaway health care costs are prescription drug costs. And it’s getting worse. The average new cancer drug costs between $5,000 and $11,000 PER MONTH!

The greatest special interest buy off in history was when Big Pharma got inserted into the Medicare Prescription Drug law a PROHIBITION against Medicare negotiating with the drug companies regarding drug costs. In one fell swoop, government (1) gave Big Pharma a pricing monopoly and (2) guaranteed payment from the government. This was a sweetheart deal worth hundreds of billions of dollars. No other sell out to non-military special interests in history ever came close.

What Larry refers to here is referenced as Part D of title XVIII of the Social Security Act.

The reason Part D is absent from the debate is because of dualing partisan legislative attempts to address it separately in the same time period.

Sen. Arlen Specter (PA-R) has made multiple attempts to introduce clean bills addressing the DHS Secy’s power of negotiation, including S2766 in July 2004, S.813 in April 2005, and in Jan 2007 as S. 273. All appear to have met with the same results… read twice, and sent to the Committee on Finance.

SUMMARY: Amends title XVIII (Medicare) of the Social Security Act with respect to prescription drug plans to repeal the prohibition against: (1) interference by the Secretary of Health and Human Services with negotiations between drug manufacturers and pharmacies and prescription drug plan sponsors; and (2) the Secretary’s requiring a particular formulary or instituting a price structure for the reimbursement of covered Medicare part D (Voluntary Prescription Drug Benefit Program) drugs. Grants the Secretary authority similar to that of other Federal entities that purchase prescription drugs in bulk to negotiate contracts with manufacturers of covered part D drugs.

Meanwhile, the DNC were busy working on their own cures. Rep. John Larson (CT-D) introduced HR 3299 in Oct 2003 with 19 of his peers. This bill also died in the subcommittee.

Medicare Prescription Drug Price Negotiation Act – Requires each participating manufacturer of a covered outpatient drug to make such drugs available for purchase by any qualified Federal health care provider, by each pharmacy, and by each provider of services, physician, practitioner, and supplier under the Medicare program at a price that the Secretary of Health and Human Services, in conjunction with the Secretary of Defense and the Secretary of Veterans Affairs, negotiates with the manufacturer. Provides that the amount of a covered outpatient drug that a participating manufacturer shall make available for purchase is equal to the sum of the aggregate amounts of the covered outpatient drug dispensed by pharmacies to Medicare beneficiaries plus those dispensed through qualified Federal health care providers.

Requires that, in conducting negotiations with participating manufacturers, the Secretary take into account the goal of promoting the development of breakthrough drugs.

Requires the United States to exclude from Government contracting and subcontracting, for a period of time, a manufacturer of drugs or biologicals that does not comply with this Act.

Directs the Secretary to establish a mechanism (such as an ombudsman) for the resolution of disputes between Medicare beneficiaries and prescription drug resellers and drug manufacturers in order to protect such beneficiaries and to ensure that: (1) prescription drug resellers are not artifically increasing prices charged to Medicare beneficiaries (above those negotiated under this Act) in places (such as rural areas) where there is less competition; and (2) such resellers are not colluding on prices in areas with more potential significant competition.

The DNC version carries more legislative caveats than the more direct Specter versions: determining a formula as to how the price is set, creating a financial blacklist for some drug manufacturers that are not seen as cooperative, and increasing departmental personnel to act as dispute mediators and investigate what they may see as price fixing within the industry.

Larson tried again in May 2005 with HR 2685, … this time with only three DNC co-sponsors.

The 2007 battle over HR 4 and S3

These previous attempts garnished little media fanfare in their day since neither got out of committees. Mid-terms ushered in a more substantial majority for the DNC. In Jan 2007, Rep. John Dingell’s bill, HR 4, with it’s 198 all Democrat co-sponsors, pushed thru committees and to the floor for a vote on the Part D negotiation issues.

The Summary reads virtually identical to Larson’s previously introduced bills mentioned above, carrying the same caveats, and expansion of government departments.

HR 4 passed with 100% DNC support, and 88% GOP opposing.

Almost simultaneously, Sen. Harry Reid (NV-D) was introducing S.3, with 17 peer co-sponsors. Tho the summary reads “clean”, the bill text (the hotlink provided) shows similar caveats as the House bill INRE subsidies, aggregate price negotiation, plus added caveats about privacy of disclosure of such with some exemptions.

This bill failed a cloture motion, preventing consideration of the bill, in the Senate by roll call vote. The totals were 55 Ayes, 42 Nays, 3 Present/Not Voting

Or, put more simply, the GOP led a filibuster, and the DNC Senate majority – along with GOP Senators Sens. Norm Coleman (MN), Susan Collins (ME), Chuck Hagel (NE), Gordon Smith (OR), Arlen Specter (PA) and Olympia Snowe (ME) – could not muster the required 60 votes needed.


Now in the heat of a ramping up, bitter partisan battle for control of the Oval Office, the finger pointing and accusations start flying…. with the GOP being portrayed as evil doers, bent on keeping prescription drugs unnaturally high. Yet, in reality, both parties want to address the problem, but see different ways of doing so.

What’s the bone of contention? According to Jeff Patch in an April 2007 Politico article, GOPer held among their concerns the appearance of price fixing, would would end up with an across the board price mark up for all companies. Also, since the thrust of the legislation is intended to lower federal costs for drugs, the GOP cited a Congressional Budget Office analysis of S.3 that concluded the legislation’s impact on federal spending would be “negligible”.

CBO estimates that developing the prioritized list of comparative effectiveness studies and preparing the reports would cost $2 million in fiscal year 2008 and less than $500,000 annually in subsequent years, assuming the appropriation of the necessary amounts. Other provisions would have a negligible effect on spending.

S. 3 contains no intergovernmental or private-sector mandates, as defined in the Unfunded Mandates Reform Act. Under the bill, states could request and receive prescription drug data from the Secretary, provided that they limit disclosure and implement plans to safeguard the data. Any costs of safeguarding that data would be incurred voluntarily.

More from the Politico report:

Republicans also discounted Democrats’ arguments that the Veterans Administration has successfully used similar tactics, because it has limited choices on many drugs and some veterans have subsequently opted for the Medicare program instead.

William Pierce, a vice president at APCO Worldwide and former HHS spokesman, said the bill gave no incentive to negotiate prices.


Sarah Berk, the executive director of Health Care America, said her advocacy organization pushes for a private-public solution to the health care system and that seniors’ choice of medication would be limited if the bill became law and the secretary swayed prices.

“Seniors are saving more money than anticipated, and it’s costing taxpayers billions less,” she said.

Another Berk quote from a Miami Herald opine piece, (excerpted from the Kaiser Network organization:

Sarah Berk, Miami Herald: “Medicare Part D is a success, yet for its own political gain the new Democratic leadership in Congress seems intent on risking seniors’ access to prescription drugs and expanded medical benefits” by promising to remove restrictions on government drug price negotiations, Berk, executive director of Health Care America, writes in a Herald opinion piece. Supporters of these efforts “contend their bill prohibits the government from limiting drug choices … but there are only two ways the government can achieve the lower prices they envision: dictate exact prices or limit choices,” Berk writes (Berk, Miami Herald, 2/2).

So again, the consumer and health care providers find themselves on the short end of the stick as an embattled Congress – tho in agreement on the problem – cannot find a conclusion that actually will achieve the desired results.

WHAT ABOUT THOSE PROFITS? R&D vs advertising realities

While Americans in need, and health care providers wait out what we can only hope will be a sensible solution to prescription drug providers… and not adding fuel to an already blazing fire… what should be addressed is the pharma industry’s profit structure. Will any attempt to negotiate drug prices inhibit future development?

All indication I find is that Larry Weisenthal comment (linked above) has some merit:

Now, what about pharmaceutical R&D if drug prices go down? This is the big scare tactic bogeyman. That’s all it is. Pharma spends a tiny fraction of its budget on R&D, relative to marketing. It’s like those Apple commercials about Microsoft and VISTA. Big amount of money for advertising. Tiny amount for “fixing VISTA.”

The USA single handedly supports the global pharmaceutical industry (much of which is headquartered in Europe, by the way, e.g. Roche, Novartis, Astra-Zeneca, Bayer, etc.). With true competition, Americans will pay less and Europeans will pay more. And probably, we’ll see a little less advertising. But pharma has to do R&D, or it will die.

There is no doubt that the R&D and patent process is expensive. But of the profits, how big is that expense, and how much is genuinely borne by the pharma company, unsubsidized? Oddly enough, I found an interesting perspective in their defense from the blog, Patent Baristas, by patent attorney, Barista Stephen Albainy-Jenei.

Barista points out that US consumers pay 2-3 times the cost as those in other nations. And while specifically critiquing an April 2007 article in the New Standard, he says:

The article points out that Genentech reported total product sales for the first quarter of 2006 increased 39 percent, to $1.64 billion, while sales of their colon-cancer drug Avastin increased 96 percent, raking in $398 million. Currently, colorectal cancer patients pay about $46,640 for a ten-month treatment regimen of Avastin.

The article tries to make a connection that drug prices are maintained at high levels due to the political leverage of pharmaceutical companies in Washington. Admittedly, a 2005 study found that the pharmaceutical and health-product industries spent $87 million on campaign contributions to federal candidates between 1998 and 2005. Probably not just as a goodwill gesture.

It seems, though, that it is more than just a lack of political will in Congress to stand up to the drug companies and enforce rules that require the drugs to be priced fairly. Clearly, it’s difficult for the government to argue fair prices after a drug is proven to be beneficial and establishes its value on the market. You end up asking how much is it worth to keep a person alive?

It is true that about half the biomedical research in the US is supported by government, or non profits, but the bulk of the research involved in actually carrying drugs through the clinical testing process needed to gain FDA approval is carried on by the pharmaceutical industry and financed through patent protection. As he points out, altho the costs of R&D may represent a small percentage of the pharma industry’s budget, the advertising and marketing of their products – plus their administration costs – is a huge chunk.

Which then brings us to not only Larry’s statement above that there will be “less advertising”, but to the basic argument looming in America about the legitimacy of “windfall profits”… a charge the DNC has not yet applied to the pharma industry, and reserved only for “big oil” thus far. Or put more simply, does the government have the right to dictate profits for the private sector?

Barista offers a logical, and free market solution.

How can the pharmaceutical industry respond to the building wave of support for government intervention? Drug companies need to decide to make some changes by trimming their prices, or at least make them more equitable, and put more of their money into R&D. That would go a long way in smoothing over the unrest among consumers.

As a free market consequence, as drugs come off patent protection, the competition hits and costs are eased.

As the “con” to Barista above, we have a conversation on the MotherJones blog news site with excerpts of an interview with Dr. Marcia Angell, author of the book, The Truth About Drug Companies: How They Deceive Us and What to Do About It.

Dr. Angell says much the same as Barista… that the majority of expenditures is not the R&D, but the marketing and advertising. The difference between the two opinions is Barista asks the quintessential question always applied to “big oil”…. should the government dictate profits? Ms. Angell approaches it from the progressive/socialist angle… yes, those profits should be dictated.


What to do about pharmaceutical prices? It turns out it will be the same as the oil industry… government intervention to attempt to control prices for honest intents… and possibly disasterous outcomes.

BTW… I doubt you’ll want to go the “follow the money” route… Tho most surface analysis showed heavier support for the GOP overall, the devil is actually in the details. i.e. in the House, the bigger financial support went to Dems, and GOP in the Senate. And with the change of power in mid terms came the flip flop on where most of the money goes now….

And truthfully, after pouring thru OpenSecrets records of pharma PACs and lobbying, it is less party oriented, and more targeted to specific Congressional members. That should be sufficient warning to the partisans and Obama faithful… you may not want to see the numbers.

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