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A
Serious Drug Problem
By Paul Krugman
New York Times
May 6, 2005
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.
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