Prescription Drug Profits & the Senior Lobby

A Tale of Two Senior Groups

by Senator John Marty
November 21, 2003

The AARP (American Association of Retired Persons) announcement that it is endorsing the Republican Medicare legislation is not surprising if you know that William Novelli, the CEO of AARP, wrote a glowing testimonial to Newt Gingrich's new book on health care. Gingrich has come back to Capitol Hill to lobby for this Medicare bill. Although Novelli and the AARP Board support the legislation, backlash from AARP members suggest most rank and file members disagree.

Even before many members of Congress had the opportunity to see the text of the bill, Novelli and the AARP leadership announced a massive $7 million advertising campaign in support of it. They did so despite acknowledging the bill has many flaws.

If the $7 million for AARP's advertising isn't coming from the drug industry lobby, it certainly should be. The drug lobby is undoubtedly the biggest winner in the prescription drug program contained in the legislation. Boston University researchers have estimated that this legislation will increase drug manufacturer profits by $139 billion over the next eight years.

Rather than stop price gouging so all Americans can get a fair price on prescriptions, the legislation subsidizes seniors who buy the drugs at inflated costs. The legislation does nothing to address the high cost of medication. In fact, it goes so far as to "explicitly prohibit the federal government from negotiating low prices on behalf of beneficiaries. This provision will prevent the type of negotiating that enabled HHS Secretary Thompson to secure a discount of 80 to 84 percent from the average wholesale price of Cipro during the anthrax crisis," according to Consumers Union.

With such a windfall, the drug lobby would gladly pay $7 million for ads to encourage its passage -- that's only $1 for every $20,000 they can expect in increased profits! The drug lobby does not hesitate to use a senior citizen group as a front in protecting their excessive profits. In fact several years ago PhRMA, the drug lobby, formed its own senior citizen group, hiding it's agenda behind the name "Citizens for Better Medicare." The drug lobby apparently spent over $65 million just in the 2000 campaign season to buy ads through this front group.

In contrast to AARP leadership's close working relationship with other lobbyists on Capitol Hill, take a look at another organization of senior citizens that has been fighting on the issue of prescription drugs for many years.

Back in 1995, the Minnesota Senior Federation was fighting for fair prices on prescription drugs. Armed with statistics showing price discrimination in wholesale drugs where some buyers were paying less than one tenth what other buyers were paying, they fought for reform.

At the time, Inderol (cardiac medication) cost the large chain drugstores $48.31 when an HMO or health plan would pay only $4.12 for the identical product.

The senior federation recognized that when some purchasers pay not 15 or 20% more, but 1170 percent more than others, it’s not volume discounting, it’s price gouging. The manufacturer of Inderol was not losing money selling it at $4.12. Selling at $48 simply meant huge profits. At the time, top drug companies had profit margins five times as large as the median of Fortune 500 companies. And this legislation would increase those profits.

How does this racket work? The drug companies block market competition that would hold prices down. The brand-name drug manufacturers have bought out nine of the largest ten generic drug companies. They use other anti-competitive measures such as paying kickbacks to HMOs and insurance companies.

The Senior Federation developed legislation in 1995 to expose the kickbacks and eliminate price discrimination, requiring drug companies to sell their products for the same price to every pharmacy in Minnesota (volume discounts would be allowed). If the manufacturer of Inderol sold the drug to one wholesale purchaser for about $4, they would have to make it available to all wholesale purchasers for about $4 -- not $48!

But the Senior Federation ran headfirst into the pharmaceutical lobby. While drug lobbyists were swarming around the hearing room, not a single drug company representative testified at the initial committee hearing. They didn't need to. They had the votes to kill the legislation ahead of time.

Frustrated at the legislature, the Senior Federation looked north. If Canadians pay about 40% less for the same drugs, why not facilitate imports? It wasn't their first choice, but when some seniors are forced to choose between eating and paying for medications, action is required.

The Senior Federation worked with local pharmacies on a plan to import Canadian drugs until the FDA shut down the operation. So, the Senior Federation sponsored bus trips to Canada.

Eight years later, these bus trips have helped change the national debate. The Governors of Minnesota, Illinois and other states are looking at drug importation programs.

Seniors deserve drug coverage under Medicare. But the current legislation isn't the way to go. Rather than prohibiting Medicare from negotiating fair prices, it should require negotiations. Rather than increase drug company profits, it should end price discrimination.

The Minnesota Senior Federation might not be insiders in Washington, but at least they are still fighting for their members.

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