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PHARMA/POLICY/POLITICS: More rational behavior from big Pharma

Exactly as happened in 2000, and 2002 a late surge of money is coming to help Republicans from the PACs of New Jersey’s finest.

According to a report published Wednesday in the Wall Street Journal, drug-industry dollars are helping to fuel the campaigns of Republican candidates like embattled incumbent Sen. Rick Santorum, R-Pa., who faces a tight race against Democratic challenger Bob Casey Jr., who calls the Part D program a “giveaway to Big Pharma.” The Santorum re-election bid has drawn $454,500 in contributions from pharmaceutical companies, WSJ said.Part D has drawn fire from Democrats in congressional races in part because it doesn’t permit the federal government to negotiate with drug companies on drug prices, and Democratic challengers have vowed to change that if elected, the report said.

While the concept of science-based companies backing Rick Santorum (the one who took his stillborn child home to meet his kids, and thinks that the earth is 6,000 years old) may be odd, it’s completely rational. Essentially now that there is a Medicare drug benefit, eventually price controls will be introduced. It’s in Pharma’s interest to delay that day as long as possible. Anyone can see that including big Pharma, who as Joe Paduda reminds us have seen profits rise with their volume now that Part D has cut in

However, it therefore exposes the whole McClellan/Ignagni line about how the private market in Medicare Part D has lowered drug costs more than direct negotiations would have done for the lie it is. After all, if Part D as written is so much worse for big Pharma than government negotiations/price controls, why would they be fighting so hard to protect it?

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KneetatieniBarry CarolRickJack E. LohmanMatthew Holt Recent comment authors
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Kneetatieni
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Kneetatieni

Hello. And Bye.

Jack E. Lohman
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Your suggested idea of a percentage and deductible is very workable, Barry, but I would argue that politicians, in their infinite wisdom, wanted to design a benefits package rather than an insurance program. Neither is true. They wanted a government giveaway to the pharmaceutical industry; nothing more and nothing less.

Barry Carol
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Barry Carol

Jack, The flat $20 co-pay does, indeed, have the advantage of being simple and easy to understand. I don’t know how it would have costed out. I do know, however, that I don’t like flat dollar co-pays because they remove price sensitivity both among drug stores and between generics and brands. I prefer a percentage of the cost approach with a sensible deductible of about $500 or so, along with means tested help for the lowest income elderly. The doughnut hole could have been easily eliminated if the deductible were set higher than $250. However, politicians, in their infinite wisdom,… Read more »

Jack E. Lohman
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Barry, a simple system that paid all but a flat $20 co-pay would have been the easiest, would not have had a doughnut hole, and probably wouldn’t have cost much (if any) more. I think the worst is yet to come as people slip into this doughnut hole. The fuse is lit on this system.

Barry Carol
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Barry Carol

Matthew — I think the comments by the insurers regarding how good a job many (not all) of the elderly did in choosing a plan that made sense for them was in the context of how confusing it was at first. While I was not paying much attention to Medicare issues when it first started up in 1965, my understanding is that the original program did not exactly enjoy a smooth startup either. At any rate, as the Part D program approaches its first anniversary with many of the early glitches resolved, satisfaction rates appear reasonably high. Furthermore, according to… Read more »

Matthew Holt
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Matthew Holt

Barry — calling the signup “process” a success is revisionist rubbish. It was a dreadful process with complete confusion all around. And MOST IMPORTANTLY the group that theoretically benefits the most from the new benefit, the “near poor” elderly, have been the slowest to sign up! Indicating that the benefits were NOT clear to them and that they did NOT easily figure out what to do . The good news for you is that you won’t (I assume) be in that group. The bad news is that the best known benefits consultant in America told me that he could NOT… Read more »

Jack E. Lohman
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Barry, to do this correctly the feds would not have fascillited the establishment of 45 different insurance companies giving Medicare patients 500 different choices (or whatever the number there is). They could have done it with less than 10 plans. Many experts have already seen the shiftiness in the process, and nobody – nobody! — denies that it was a $780 billion taxpayer giveaway to the pharmaceutical industry. That’s one hell of a return on investment.

Barry Carol
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Barry Carol

Jack, I love the drug stores too and think they do a great job. The difference is that the insurance plans sold by PBM’s, health insurance companies, and Medicare itself are risk products. They guarantee to provide all drugs included in their formulary under the co-pay and deductible terms of the policy without limit (unless their is a specified benefit maximum) in exchange for the premium paid by the beneficiary and the taxpayer (or employer). The drug store takes no financial risk. It just modestly marks up the medication and adds a professional or dispensing fee to cover the cost… Read more »

Jack E. Lohman
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Guys, what’s wrong with the drug distribution system we had in place before Part D came along? It was called drug stores, and drug stores could bill insurance companies. I bought drugs and paid my deductible. They billed my insurer for the rest. It worked! I would have preferred that Part D stood for Drug Stores, but of course they were an established entity. Insurers and politicians found a way to create a new and parallel industry in which they all could share in the profits. (Actually, because they now get a piece of the profits the drug industry has… Read more »

Barry Carol
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Barry Carol

Rick — Both PBM’s and health insurers selling Part D plans told investors that they were “amazed” at how good a job seniors did in sorting through the available choices and finding a plan best suited to their needs. I was surprised as well. Speaking as one who will be eligible for Medicare in the not too distant future, maybe you CAN teach an old dog new tricks!

Rick
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Rick

Adam, if you want to talk about things that are not self-evident, consider your own assumption that the multitude of choices is a welcome thing for seniors. When we are young, we want choices. When we are old, we become settled and want to stick to what we chose long ago because it suited us, even if it wasn’t the best, like driving a Crown Vic or Grand Marquis. Choice is not the high priority among seniors that the younger folk creating health plans for them assume it is. Never having been a senior citizen, you don’t know that yet,… Read more »

Jack E. Lohman
Guest

This whole “free market” approach to drug development has gotten terribly out of hand. The FDA is now in great part funded by the Pharma companies who are thus viewed by the FDA as “customers” rather than an industry they regulate. (The public is the real customer, but that has gotten lost in our moneyed political system.) Over half of the scientists that sat on the Vioxx approval board had received money from the manufacturer but did not recuse themselves. We saw the results here and in many other product categories. We must revamp how we develop drugs, and I… Read more »

Adam J. Fein
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Of course prices will be lower. But your embedded assumption is that lower pharma prices are automatically beneficial to society in the long run. That might be true, but is not self-evident. To quote from the Amazon description of Richard Epstein’s new book Overdose: “While critics of pharmaceutical companies call for ever more stringent controls on virtually every aspect of drug development and approval, Epstein cautions that the effect of such an approach will be to stifle pharmaceutical innovation and slow the delivery of beneficial treatments to the patients who need them.” I recently attended a conference at which the… Read more »

Matthew Holt
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Matthew Holt

So Adam, answer me this. If negotiations won’t lower Pharma prices (if not profits) why are they fighting it so hard?

Adam J. Fein
Guest

The Democratic playbook on Medicare has been clear for some time. (See my July post on the topic: The Part D direct negotiations movement) Given the diversity of PDP plans, it’s not clear whether direct negotiations will make things better and could make things worse. Monthly plan premiums for the top 10 PDPs ranged from $2 to $75 in 2006, suggesting that seniors have a lot of choices based on personal needs and situation. The band is narrower in 2007 ($10-$88), but there is still a lot of variation and choice. As I point out in a post last week,… Read more »