To get the business, you cut the price
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 email@example.com.