Philip Morrising the drug companies - Part 2

Two pieces of bad news greeted pharmaceutical companies this past week as they hid out quietly, trying desperately not to look like the tobacco industry to angry legislators.

The first was that a stalwart Republican Senator, Slade Gorton of Washington, announced that he is preparing legislation that will force drug companies to reduce disparities in prescription drugs prices between the United States and other countries, specifically Canada and Mexico.

The second piece of cheering news was that the Department of Health and Human Services released a study showing that there are "alarming" disparities in the price of prescription drugs for patients on Medicare.  Prescription drugs for Medicare patients who have no drug benefits cost up to 15% more than for Medicare patients who do have such benefits. Those with prescription benefits have the advantage because the large health plans to which they belong can negotiate for price discounts from the pharmacy chains. But whatever the reason for the disparity, the fact that elderly patients without prescription drug benefits are doubly penalized (not only do they have to pay for all their own drugs, they are also forced to pay more for each prescription than those who have drug benefits) is viewed with great indignation by many, including the Op Ed writers of the New York Times. (April 11,2000). 

DrRich comments:

Senator Gorton has surely blindsided the drug companies, which have been counting on their Republican defenders to save them from the prospects of several types of proposed harmful legislation.  Instead, here comes a Republican who not only fails to defend them, but also (to put it mildly) piles on.  Senator Gorton's proposed legislation would accomplish on a federal level the same thing that would be accomplished on a state level by certain New England legislators - it would establish a precedent for the government to control drug prices.  

The DHHS report on drug pricing disparities among Medicare beneficiaries merely states the obvious.  Any patient belonging to a sizable private health plan is (theoretically) the beneficiary of the superior negotiating positions enjoyed by such plans.  The large health plans exert that power all the time, with all vendors of all medical products.  It's why large health plans, for instance, can get away with paying hospitals and doctors less money than it actually costs to deliver care in many instances. (Which again just points out how absurdly bad doctors and hospital administrators are at running a business. "Sure we're losing money on every patient we see. We'll just have to make it up on volume.")  

What always happens is just what has happened with drug prices. In order to keep the business of the large health plans, pharmacies must give in to a lower price than they can actually afford.  But it's not that much of a problem, since they can just make it up by raising prices for those who aren't in one of the health plans.  In other words, the effect of large health plans is always to increase prices for those who aren't in a large health plan.  We didn't really need DHHS to tell us this.

But it is instructive that DHHS chose to tell us this obvious fact at this particular time. The cost of prescription drugs is a major political issue right now. Pointing out the disparities in drug prices, and the essential unfairness of these disparities, is politically advantageous.  As the New York Times says, the DHHS report makes "a persuasive case for providing a drug benefit for all Medicare beneficiaries."  Presumably universal drug coverage would allow these beneficiaries to exert their collective purchasing power to lower their drug prices, too. (This argument, of course, ignores the fact that if all Medicare patients were members of a collective, then there would be no "escape valve" for pharmacies when they negotiated prices. Prices for those patients who currently have drug benefits, therefore,  would predictably rise.)

The DHHS report is only indirectly a problem for the drug companies, since it is the pharmacies which have negotiated the price disparities here, and not the drug companies. But ultimately, the blame for the "unreasonably" high cost of prescription drugs that the pharmacies must pay comes down on the head of the drug companies. It dovetails nicely with the famous international disparities in drug prices trumpeted by Senator Gorton and many others.  And in today's atmosphere, any news report that even mentions disparities in drug pricing just brings more trouble for the increasingly beleaguered drug companies, and lowers the threshold for piling on. Even Republicans are getting into the act.

All over America, physicians are asking themselves whether there are enough fraud fighters in the federal government to persecute both doctors and the drug companies at the same time.  If not, doctors may dare to wonder, will the growing feeding frenzy faced by pharmaceutical companies give physicians a few months or even years of respite? 

04/12/2000

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