Pharmaceutical industry perturbed by the Drug Savings and Choice Act

In the April Dose of Reality, Neil Davis shows how the pharmaceutical industry, which is not happy about the provisions in the Medicare Prescription Drug Savings and Choice Act of 2009, is, in effect, a giant marketing machine, but not really an industry devoted to finding new drugs to cure illness. (You read that right.)

It is the most profitable of all industries in the United States, with profits equaling 25 percent of sales. Big Oil isn’t even close.…

In 2000, drug company expenditures for marketing and administration amounted to 36 percent of sales income, but only 14 percent of income went to research and development. Thus, the expenditure for marketing and administration was two and a half times that for drug research and development.

Also, of seventy-eight drugs approved by the Food and Drug Administration (FDA) in 2002, only seventeen contained new active ingredients, and only seven were classified by FDA as improvements over older drugs. Not one of these improved products came from a major drug company.

So, going by the numbers, the truth is that big pharmaceutical companies are primarily marketing machines. Their high profits and large marketing costs are the true reasons that the public has to pay such high prices for pharmaceuticals. It is not due to the need to cover the cost of developing new drugs.

The health care reform war starts

And the first sally, according to Neil Davis, is the Medicare Prescription Drug Savings and Choice Act of 2009 (HR 684 and S 330).

I am hoping that President Obama and the Democrat-controlled Congress will get behind the serious reform proposed by HR 676… this bill calls for a total overhaul of the system by taking health care out of the marketplace.…But the early signs are that the Democrats in Congress and President Obama are not willing to make a frontal attack on health care reform.

Instead, Davis says, they are hoping to set up a government operated program that would deal with only one small part of the health care picture: negotiating drug prices for Medicare. A step in the right direction, but only one smal step--still, one that would save perhaps $40 billion annually!

More in the March Dose of Reality.

April author events in Fairbanks

April 4: talk at the meeting of the UAF Society of Pre-med Students, 6 pm

April 28: IDEA Curriculum Fair, Westmark Hotel & Convention Center, 11 to 1

Neil Davis on Sleep in Saturdays with Matt Want

Matt Want hosts a local talk show on 660-KFAR on Saturday mornings from 10 to 11 am, choosing a different topic each week. This Saturday's topic is the US health care system and Neil Davis has been invited to be on the show. You can call in with questions or ask for advice; the phone number is 907.458.8255 (458-TALK).

(Cross-posted on The Ester Republic blog)

Insuring the Uninsurable

In February's Dose of Reality, Davis looks at the some 60,000 Alaskans who are refused health insurance by the for-profit industry and the alternative they are provided by the state: health insurance so expensive that almost no one has purchased it:

The cheapest ACHIA policy is a PPO plan with a deductible of $15,000 and maximum out-of-pocket expense of $25,000. A person twenty-five years old can buy this policy for $1,848 per year, but it costs a sixty-year-old person $6,384. Each of those persons is at risk for another $25,000, the out-of-pocket maximum, and each will have to pay the $15,000 deductible before receiving any benefit whatsoever from the policy. Thus the twenty-five-year-old will pay out only $1,848 for health care if he needs no health care during the year (all money goes to policy premiums) but at worst he might have to pay out another $25,000 for the health care he needs before the policy covers all costs thereafter. Thus, his worst-case expenses are $26,848 per year.

How many 25-year-olds can afford $15,000 in deductibles?

The Health Care Reform War Opens

Democrats fired the opening shot of the Health Care Reform War in January with the introduction of a bill to allow Medicare to negotiate prescription drug prices with the pharmaceutical industry. Introduced in both the House and Senate, the Medicare Prescription Drug Savings and Choice Act of 2009 (H. R. 684) negates provisions of the Bush administration’s Medicare Prescription Drug Improvement and Modernization Act of 2003 that prevented such negotiations.

If the bill becomes law, Medicare will have the same power to negotiate as the Veterans Administration. That organization is able to buy pharmaceuticals for little over half what the Medicare D insurers pay. Consequently it is expected that major savings will accrue to both taxpayers and Medicare beneficiaries, perhaps as much as $40 billion annually.

Very likely, as with the stimulus package legislation just enacted, the passage of this legislation will shape up as a partisan battle. Our Senator Begich surely will vote for it, but the Republicans in Congress probably will stand almost unanimously against passage in order to protect pharmaceutical and insurance industry profits. Alaskans should watch how Senator Murkowski and Representative Young vote on this issue. It is an opportunity for them to display their true colors; are they on the side of the taxpaying public, or are they on the side of the for-profit insurance and pharmaceutical industries? There is no in-between on this one.

A pseudo-solution

In the latest Dose of Reality, Davis discusses the results of a recent study by Families USA:

Overall, it’s not a very pretty picture. Health insurance premiums for Alaskans increased 73.6 percent from 2000 to 2007. That increase is 5.7 times higher than the rise in median salaries, and to make matters even worse, out-of-pocket costs for health care not covered by health insurance also substantially increased.

Alaska Dispatch has a recent article on this same problem.

However, says Davis,

The public is starting to understand that the situation cannot continue in this direction, but only a portion of the public comprehends that the trend can be reversed by instituting a single-payer health care system. The health insurance industry is ahead of the public on this issue, and is very worried that increasing health insurance costs might actually drive the country into establishing a single-payer system that would put the industry out of business.…

Hoping to fight any reform disadvantageous to itself, the health insurance industry is going on the offensive. Its trade organization, America’s Health Insurance Plans…announced a self-seeking health care reform proposal designed to maintain the industry in the profitable lifestyle to which it has become accustomed.

The gist of the proposal is that the industry will agree to insure everybody—even those with pre-existing health conditions, but that the American taxpayer will pick up a big portion of the bill. In short, it is a bail-out akin to that now being given to the financial and auto industries. However, this one will not be a one-time grant, but rather a subsidy that will last forever.