Medicare windfall for Big Pharma

An excellent article by Tony Pugh, an investigative reporter for Knight-Ridder newspapers, shows once again how those who control an industry can get the rules and laws changed to benefit them, to the tune of billions of dollars.

The article ("Windfall for drug industry raises questions", 2/2/06) shows how the Medicare drug bill, passed last year with great hoopla over its benefits to elderly consumers, has turned into a bonanza for Big Pharma.

They will get an estimated $2 billion in extra profits as drug companies are no longer obliged to pay rebates on government drug purchases for the poor. Profits are likely to add up to $40 billion over ten years, a direct subsidy of drug companies by taxpayers.

The boost in profits comes from a shift in the drug coverage of 6.4 million poor and elderly people from Medicaid to the new Medicare drug benefit. Unlike Medicaid, which requires drug companies to charge their lowest or "best price" for medications, the Medicare program relies on competition among private drug plans to keep prices low. By eliminating the need to discount drugs for the government, the industry can now pocket the savings.

According to a study by the Prudential Equity Group, Medicare drug plans "will negotiate discounts amounting to only 5 percent of what the drug companies paid in rebates to Medicaid on those products."

In the case of AstraZeneca, the money pocketed for their antipsychotic drug Seroquel could boost corporate profits by 8%. For Eli Lilly, removing the discounts on Zyprexa could boost profits by as much as 6%.

Drugs treating psychosis are among the most expensive ones bought for the elderly poor.

Source: Oligopoly Watch