A Serious Drug Problem

[Guest guest]

http://www.nytimes.com/2005/05/06/opinion/06krugman.html?hp

May 6, 2005

A Serious Drug ProblemBy PAUL KRUGMAN

 

 

 

There was a brief flurry of outrage when Congress passed the 2003 Medicare bill.

The news media reported on the scandalous vote in the House of Representatives:

Republican leaders violated parliamentary procedure, twisted arms and perhaps

engaged in bribery to persuade skeptical lawmakers to change their votes in a

session literally held in the dead of night.

 

Later, the media reported on another scandal: it turned out that the

administration had deceived Congress about the bill's likely cost.

 

But the real scandal is what's in the legislation. It's an object lesson in how

special interests hold America's health care system hostage.

 

The new Medicare law subsidizes private health plans, which have repeatedly

failed to deliver promised cost savings. It creates an unnecessary layer of

middlemen by requiring that the drug benefit be administered by private

insurers. The biggest giveaway is to Big Pharma: the law specifically prohibits

Medicare from using its purchasing power to negotiate lower drug prices.

 

Outside the United States, almost every government bargains over drug prices.

And it works: the Congressional Budget Office says that foreign drug prices are

35 to 55 percent below U.S. levels. Even within the United States, Veterans

Affairs is able to negotiate discounts of 50 percent or more, far larger than

those the Medicare actuary expects the elderly to receive under the new plan.

 

After the drug bill's passage, Jacob Hacker and Theodore Marmor of Yale

University estimated that a sensible bill could have delivered twice as much

coverage for the same price.

 

Needless to say, apologists for the law insist that the prohibition on price

negotiations had nothing to do with catering to special interests - that it was

a matter of principle, of preserving incentives to innovate. How can we refute

this defense?

 

One way is to challenge claims that the pharmaceutical industry needs high

prices to innovate. In her book " The Truth About the Drug Companies, " Marcia

Angell, the former editor in chief of The New England Journal of Medicine, shows

convincingly that drug companies spend far more on marketing than they do on

research - and that much of the marketing is designed to sell " me, too " drugs,

which are no better than the cheaper drugs they replace. It should be possible

to pay less for medicine, yet encourage more real innovation.

 

Another answer is to point to the haste with which key players in the drug

bill's passage cashed in - making the claims that they wrote a pharma-friendly

Medicare bill out of genuine concern for the public's welfare look ludicrous.

 

Let's look at just two examples.

 

Billy Tauzin, who shepherded the drug bill through when he was a member of

Congress, now heads the Pharmaceutical Research and Manufacturers of America,

the all-powerful industry lobby group, for an estimated $2 million a year. In

his new job, he's making novel arguments against allowing Americans to buy

cheaper drugs from Canada: Al Qaeda, he suggests, might use fake Viagra tablets

to get anthrax into this country.

 

Meanwhile, Thomas Scully, the former Medicare administrator - who threatened to

fire Medicare's chief actuary if he gave Congress the real numbers on the drug

bill's cost - was granted a special waiver from the ethics rules. This allowed

him to negotiate for a future health industry lobbying job at the very same time

he was pushing the drug bill.

 

If all this sounds like a story of a corrupt deal created by a corrupt system,

it is. And it was a very expensive deal indeed. According to the Medicare

trustees, the fiscal gap over the next 75 years created by the 2003 law - not

the financing gap for Medicare as a whole, just the additional gap created by

legislation passed 18 months ago - will be $8.7 trillion.

 

That's about three times the amount President Bush proposes to save by cutting

middle-class Social Security benefits.

 

In fact, I have a suggestion for Mr. Bush. One way to prove that he's really

sincere about addressing long-run fiscal problems, that his calls for benefit

cuts aren't just part of an ideological agenda, would be to put Social Security

aside for a while and fix his own Medicare program. Oh, never mind.

 

Nonetheless, someone will eventually have to take on the health care special

interests. Who might do that? I'll write about that in the next installment of

this series.

 

E-mail: krugman

 

 

 

 

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