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Posted on Thu, May 30, 2013 : 8:15 p.m.

To get the business, you cut the price

By Robert Faber

During my years in both the retail and service businesses, one condition was common to both — on most major transactions the supplier that offered the best deals won the contract. In my fabric business, for example, I had to give a discount to the school wanting to buy fabrics for their sewing classes. And in my travel business, in order to win the contract for the European tour we had to cut our hotel and airline commissions to keep the rates below those of our competitor.

Such procedures are standard and its principles of give-and-take have become the model for major business transaction everywhere — except with the American legislators. Unfortunately, in matters affecting the American health care system, that process has been manipulated to more lucratively benefit the pharmaceutical drug industry — and its friends in Congress.

This year Medicare is expected to spend about $60 billion for its purchase of prescription drugs. Such a massive purchase assumes on-going negotiations with its suppliers to reduce such costs at least somewhat. And that is the accepted process — for every buyer except Medicare.

As one example of many, the U.S. Department of Veterans Affairs, although smaller than Medicare and without their formidable clout, was able to negotiate a deal with the pharmaceutical drug industry to cut their prescription drug costs by 40 percent. By simply striking the same deal for the same drugs from the same suppliers, Medicare could cut their pharmaceutical drug costs by $24 billion dollars — for each year well into the future.

Unfortunately, such traditional standards for price setting do not apply in the case of Medicare’s purchases. In 2003, Congress passed a law prohibiting Medicare from negotiating drug prices — a restriction practiced by no other department or private firm or country in the world.

The basis for so narrowly limiting such reasonable efforts to reduce costs for Medicare seems to be connected to the relationship that has grown between the Congress and the pharmaceutical industry over the years. And the primary characteristic of that relationship are the legislative favors paid to the industry by the members of Congress, evidently in exchange for the financial favors bestowed upon the legislators by the industry — elsewhere defined as “bribery”.

For example, between 1998 and 2005 the pharmaceutical companies spent $900 million dollars on lobbying — more than any other industry — plus an additional $253 million dollars in direct contributions to the political campaigns of the targeted (or perhaps “adopted”) legislators, resulting in Medicare paying more for its pharmaceuticals than does any other large drug purchaser in the world.

As one example of the power and the spread of the pharmaceutical lobbying industry, in the single year of 2009 Democratic Senator Max Baucus collected $453,649 from health care providers and their lobbyists — while he was chairman of the Senate Healthcare Committee.

And it worked! A good example of the pharmaceutical lobby’s effectiveness was their success in 2003 by having the Congress pass a law prohibiting the government from negotiating prices with companies who provide the prescription drugs covered by Medicare. As a result, prices stay high, and the pharmaceutical companies stay healthy and happy.

Now, according to Marcia Angell, former head of the New England Journal of Medicine, because of the industry’s hard work and Congress’s desire to please, we have the honor of being “the only advanced country that permits the pharmaceutical industry to charge exactly what the market will bear" — without fear of interference by those who pay the bill.

The happy days of retirement are looking ever better for many of our dedicated legislators, although most American taxpayers — or their fragile brethren — do not necessarily share that bright future.

Robert Faber has been a resident of Ann Arbor since 1954. He previously owned a fabric store and later a travel agency. He served a couple of terms on the Ann Arbor City Council. He may be reached at



Fri, May 31, 2013 : 6:52 p.m.

senators levin and stabenow voted against it as did all michigan democrats in the house--all the republicans voted for it except for nick smith!

Stephen Lange Ranzini

Sun, Jun 2, 2013 : 11:28 a.m.

Thanks or the answer to my question @dogface!


Sat, Jun 1, 2013 : 8:07 p.m.

The centerpiece of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Medicare Modernization Act) was the creation of Medicare Part D, a subsidized pharmaceutical benefit that went into effect in 2006. That additional coverage—which provides outpatient prescription drug insurance to seniors and to people under age 65 with certain disabilities— constituted the most substantial expansion of the Medicare program since its inception in 1965. In 2010, the federal government spent $62.0 billion on Part D, representing 12 percent of total federal spending for Medicare that year.


Sat, Jun 1, 2013 : 2:53 a.m.

The Democratic Party alternative for Medicare Part D, pitched by Ted Kennedy, was scored by the CBO as costing double.


Fri, May 31, 2013 : 7:22 p.m.

9 Democrats in the House voted for it, all the rest voted against it. Almost every Republican voted for it - enough to get it to pass by one vote.


Fri, May 31, 2013 : 2:24 p.m.

called them out nicely, Bob. Now if we'd all demand something change...


Fri, May 31, 2013 : 12:25 p.m.

Case study in why nationalized healthcare is a bad idea. Thank you, Robert.


Fri, May 31, 2013 : 12:56 p.m.

Hate to tell you, but this has nothing to do with nationalized health care. Quite the contrary, nationalized health care should not, indeed cannot accept this kind of behavior. This is simply greed by congress in its worst form, We argue for free markets in which everyone competes on a level playing field -- well, here is your example of the pharmaceutical industry making sure their playing field is more level than anyone else's. If the people we continue to put in congress continue to make these kinds of decisions, then we have only ourselves to blame. And now we have a congress that refuses to do anything because no government is better than any government -- well, all that does is perpetuate what is wrong. And big pharma can continue to laugh all the way to the bank. Ypu wonder why they look down upon us as "dumb" -- do you have any doubts, really?


Fri, May 31, 2013 : 12:01 p.m.

I would of never guessed that our government is only out for themselves, this isn't news only a reaffirmation on how bad our system is and how it is getting out of control at all levels, think it's bad now what till the Affordable Act kicks in, the past it will be remembered as the good ole days and the future will be a blunder of misappropriations and pilfering of the working class through higher taxations or like how this administration is calling them fines or penalties mandates.

Lou Perry

Fri, May 31, 2013 : 11:47 a.m.

A case study of how lobbyists run Washington.


Fri, May 31, 2013 : 10:39 a.m.

And we continue to elect the same Senators year after year and somehow expect different results. That's the definition of insanity................

Stephen Lange Ranzini

Fri, May 31, 2013 : 10:29 a.m.

"In 2003, Congress passed a law prohibiting Medicare from negotiating drug prices - a restriction practiced by no other department or private firm or country in the world." I'm curious to know how our own legislators voted?


Tue, Jun 4, 2013 : 10:57 p.m.

As expected, approaching your own intersection and ignored the light. 2012 "White Paper?" let me guess, from the Obamacare web site again? Read this and get back to us:


Tue, Jun 4, 2013 : 5:52 p.m.

A section of one of the white papers called "Estimated Budgetary Effects from 2012 to 2021: Direct Spending and Revenues" states: "The CBO and JCT effectively estimated …that PPACA and the health-related provisions of the Reconciliation Act will produce a net decrease in federal deficits of $210 billion over the 2012–2021 period."


Mon, Jun 3, 2013 : 10:14 p.m.

What's "hysterical" is ignoring the passage process of Medicare Part D and the democratic plan pushed as the alternative - what makes it less than hysterical, but interesting, is the intersection you have put yourself in via your own words. Let's see if you see the light. As you wrote: "...instead of a program that did pass and exceeded all of the cost estimates on which it was based" - now we'll substitute Med D for Obamacare, as that's now almost double the projected cost even BEFORE full implementation. Didn't you guys learn anything from the first time around? Or do you like repeated hysteria? If you had bothered to read the Politifact link Sparty, you would have seen it does indicate a $7 trillion bill - in seventy five years. Just be honest with folks Sparty, we don't need the MSNBC spin - it will hit a trillion around 2020, then you can call it the "first Med-D Bush trillion" all you want. In the meantime, the half truths, partial facts for spin, ignorance of the Med D passage in the political and historical environment, just points out a dogma walker.


Mon, Jun 3, 2013 : 6:50 p.m.

Per Medicare: Over the next several years, you pay less in the coverage gap until it's closed by 2020. By 2020, you'll pay only 25% for covered brand-name and generic drugs during the gap— the same percentage you pay from the time you meet the deductible (if your plan has one) until you reach the out-of-pocket spending limit (up to $4,750 in 2013). Did you read the phrase "until it's closed by 2020", AC? Perhaps you better read up on what that means then. The Medicare Trustees already indicate the Medicare Part D program will be costing TRILLIONS, due to the compounding interest effect on the National Debt ... something your mathematical model seems to neglect, AC? How is that possible? In fact, the TRUSTEES report, as I indicated, that they estimate the cost to be approximately a Trillion Dollars every 10 years which is conservative given the increasing number of participants due to the increasing number of baby boomer retirements. And rather than accepting that this UNFUNDED program passed with almost no Democratic support, by a Republican Congress and President, and will cost Trillions of Dollars moving forward, you try to blame Democrats for proposing something that might have cost more IF it had passed ... instead of the program that did pass and exceeded all of the cost estimates on which it was based. Hysterical !


Sun, Jun 2, 2013 : 10:29 p.m.

The Sparty score: Says Obama negotiated with Pharma and CLOSED the donut hole by 2020. Answer: will REDUCE donut hole IF Pharma plays along (it is a continual negotiation process): The Kaiser Family Foundation wrote in its issue brief "Summary of Key Changes to Medicare in 2010 Health Reform Law" on "The Patient Protection and Affordable Care Act: • Gradually phases in coverage in the Medicare Part D drug benefit coverage gap, or 'doughnut hole.' In 2010, Part D enrollees with any spending in the coverage gap will receive a $250 rebate. Beginning in 2011, enrollees with spending in the coverage gap will receive a 50 percent discount on brand-name drugs, provided by the pharmaceutical industry. The law phases in Medicare coverage in the gap for generic drugs beginning in 2011, and for brand-name drugs beginning in 2013. By 2020, Part D enrollees will be responsible for 25 percent of the cost of both brands and generics in the gap, down from 100 percent in 2010." Sparty score: feeling generous; .75 of a point as the donut hole claimed "closed" is still there. Sparty alludes Medicare Part D is already costing TRILLIONS as Bush debt. Politifact proves Sparty wrong, won't hit one trillion mark until 2020 at earliest. Sparty refuses to rebut. Sparty score 0. Sparty says Democratic plan "had more" therefore, scored twice as expensive by CBO. No doubt it would have more - it is from the Democrats - but Sparty refuses to rebut that Medicare Part D ALSO had more than just drug purchases. Sparty score 0. Total: .75 of a possible 3 = fail And do you really want to get into a history lesson, complete with Bush AND Gore campaign promises about drug prices and government programs to address them in 2000? It was a spend-promise fest for both. Medicare Part D got passed over Democratic opposition (because they wanted to spend MORE) and the usual reluctance of republican support for a government program.


Sun, Jun 2, 2013 : 6:36 p.m.

No, AC .... negotiating with the Pharmaceuticals to close the Part D donut hole is exactly what was done in ObamaCare. You said Obama didn't negotiate drug pricing, but he did and the proof of it is in ObamaCare's closing of the donut hole and how it is done. FACTS, AC, FACTS - they matter. Do a little research, will you? You won't look so uneducated. I know exactly what the hole is, but it is being closed as a result of the negotiations Obama did with the Pharmaceuticals during ObamaCare and the funding that results allows it to close (be eliminated) by 2020. Please get educated. We'll chat on another topic, I know, given the way you always rebut everything that I say. Ciao.


Sun, Jun 2, 2013 : 12:27 p.m.

Ah Sparty, Numbers are straight from Politifact. If you have an issue with them, go to the link. You see, I actually cite my sources. "Closing the donut hole" is not "negotiating with the drug companies". Two entirely different things Sparty and you should know better. The "hole" is when federal benefits stop and then start again - nothing to do with drug prices and/or negotiating with big Pharma. Medicare Part D as passed, ALSO contains additional items/benefits, - again, consult the Politifact link or wiki it, then you'll "get it".


Sun, Jun 2, 2013 : 3:32 a.m.

Ah, AC, I love how you change the time periods and the sources to match up with your desired numbers. The fact is, Medicare Part D is expected to cost $1 Trillion every 10 years, according to their own Trustees! That is probably conservative given the large numbers of retirees due to the baby boomer retirement projections. And, the Democratic plan you keep referring to that was more expensive obtained more health care reform elements than just drugs, explaining the cost differences .... More benefits, more costs. Get it? And Again, Obama did negotiate with the Pharmactical Companies in ObamaCare - it's how the funding exists to close the donut hole by 2020. Your statement that he avoided drug pricing was false.


Sat, Jun 1, 2013 : 10:19 p.m.

Ah Sparty, "According to a fiscal 2011 analysis from the Office of Management and Budget, the cost of the program from 2011 to 2020 would be more than $950 billion". The ten year cost measure (2006-2016) is $500 billion. So, sometime in late 2020, you will finally be grammatically and factually correct (we'll proclaim a national holiday) when the program costs one trillion dollars and one cent ("trillions" as you call it). "Democrats, led by Ted Kennedy, had pitched an even more expensive Medicare Part D scored by the CBO to cost $800 billion in its first 10 years, double the cost of the republican plan". Source: Politifact As Obamacare is now at $1.76 trillion (originally promised at $940 billion) and hasn't even really kicked in yet - your complaint is? Yes Medicare Part D (typo). Filling a donut hole is not the point of Mr. Faber's article Sparty - his point is hard bargaining with drug companies on prices - something Obama had a chance to do as part of Obamacare - but $$$ talked.


Sat, Jun 1, 2013 : 8:18 p.m.

Yes, AC, TRILLIONS .... the ten year cost of the Plan is expect to cost over a Trillion Dollars. It is and was passed unfunded. Do you think it will end after 10 years, when you acknowledge $950 Billion will have been spent? The ongoing cost and the interest on that first trillion will add to the next 10 year cost of over another Trillion Dollars. You see how those Trillions add up, especially when they are unfunded? Obama didn't avoid drug pricing in ObamaCare. He did address it, specifically ... it is how the donut hole begins closing through 2020. At that point it will be closed. Democrats, and Kennedy, proposed a more expensive Part B? What are you referring to? Drug Plans are Part "D".


Fri, May 31, 2013 : 10:16 p.m.

And the rest of the story: 1) CBO estimates put cost of program to 2016 (from 2003 passage, 2006 implementation) at 950 billion (not "trillions" as Sparty says). 2) Democrats, led by Ted Kennedy pitched an even more expensive Medicare Part B that was scored by CBO as double the cost of the republican plan. 3) Obama avoided drug pricing in Obamacare. Why? Mr. Faber nails it - $$$.


Fri, May 31, 2013 : 7:17 p.m.

You recall .... It was President GW Bush's unfunded Medicare Prescription Drug Plan .... the one that added Trillions to our National Debt, the one that President Obama had to record. Quite a Republican accomplishment. But, it was an addition to Bush's two unfunded Wars, yet that's another story based on false premises that I won't get into.


Fri, May 31, 2013 : 1:22 p.m.

This was part of a much larger Medicare Prescription Drug act - Medicare Part D - the famous Bush era entitlement program that was passed without any accompanying method of funding it. The initial vote in the House (before the bill went to conference) has become legendary because of the abuse of the voting process by the House GOP leadership - where the time to vote had expired and the bill seemingly defeated but was then left open till the wee hours of the morning so that the leadership could coerce enough reps to switch their votes so as to pass it. The Republican committee chairman who drove this whole process, and the non-negotiation clause, quit Congress two months later to become chief lobbyist for the pharmaceutical industry. Thats how it works... In the end the vote was 216-215 with Republicans in favor 207-19 and Democrats opposed 9-195.

Dog Guy

Thu, May 30, 2013 : 8:58 p.m.

Very clever of Congress, whose members will neither pay for nor need Medicare, but do solicit "contributions". We certainly elect smart people.


Thu, May 30, 2013 : 6:33 p.m.

Excellent point very well presented. I have been barking about this for years and no one seems to care. All the silly back and forth regarding budget issues and sequestration and no action on this. It would be a slam dunk no brainer bipartisan win to pass legislation to allow Medicare to negotiate drug prices. It would go something like this. "I need a high blood pressure pill. I will pay 50 cents a pill . I have 80 million patients . Who's in?" It might trickle down to other commercial insurers since they do not want to pay more than any good deal Medicare negotiated. Silly congress.