Drug companies have armies of lobbyists, and the rest of us are paying the price.
It’s no surprise that American corporations spend billions of dollars each year on lobbying, trying to gain favorable treatment from legislators. What some may find a bit unnerving is the industry that’s leading the pack in these efforts.
You might think our nation’s defense and aerospace companies, which have legions of hired guns on Capitol Hill, are the leaders. Or perhaps Big Oil, which is perpetually fighting with environmentalists and consequently needs friends in Washington to block what it considers onerous legislation or regulations.
In both cases, you’d be wrong. It’s actually the pharmaceutical industry that spends the most each year to influence our lawmakers, forking over a total of $2.6 billion on lobbying activities from 1998 through 2012, according to OpenSecrets.org. To get some perspective on just how big that number is, consider that oil and gas companies and their trade associations spent $1.4 billion lobbying Congress over the same time frame while the defense and aerospace industry spent $662 million, a fourth of Big Pharma’s total.
(Number two on the OpenSecrets list, by the way, was my old industry, insurance, which spent $1.8 billion. Although health insurers were among the biggest spenders, the list also includes property and casualty and auto insurers.)
The huge sum of money our nation’s drug makers lavish on Congress each year begs the question, what are they seeking in return? Surely it has something to do with the fact that our nation’s legislators turn a blind eye as pharmaceutical companies engage in predatory pricing practices while enjoying exclusive rights to manufacture drugs for 20 years or more. All at the same time that drug costs and drug price inflation are among of the main drivers of health care costs for individuals and families and threaten the fiscal health of our public health care programs.
To get some idea of the impact of all this on the American health care consumer, it is instructive to compare drug prices in the United States to those in other countries, where governments set a limit on price increases. While it’s not news that U.S. residents pay more for the same drugs as our foreign counterparts, what is not as well understood is how that gap grows ever larger each year as drug companies around the world dig ever deeper into the pockets of sick Americans to bolster their profits and meet earnings expectations of Wall Street analysts.
Each year, the Canadian government’s Patented Medicine Prices Review Board releases a study analyzing drug prices around the world, and according to that study prices in the United States have risen an average of 8 percent a year from 2006 through 2011, while drug prices in Canada have remained flat. The impact that has on the divergence in pricing for the U.S. health care consumer is considerable.
Back in 2006 for example, U.S. consumers paid about 70 percent more than our northern neighbors for prescription drugs still on patent, according to the Canadian board. Five years later, in 2011, that difference had surged to 100 percent. And with drug price inflation in the United States hitting 11 percent in 2011, that gap will undoubtedly grow ever wider in the future.
The influence that Big Pharma has purchased by lobbying our nation’s legislators has an impact that touches virtually every American. Not only does it affect health insurance premiums, but it also impacts the solvency of our Medicare system, which was expanded in 2006 to include a prescription drug benefit. That was good news for Medicare beneficiaries, of course, but even better news for the pharmaceutical industry. That’s because the industry’s friends in Congress (and the White House at the time) went along with Big Pharma’s demand that Medicare not be allowed to negotiate pricing with drug makers to make medicines more affordable to beneficiaries.
So not only did drug makers get a huge new revenue stream from taxpayers, but they pulled a fast one on us. Insurers and hospitals and even the Department of Veterans Affairs can bargain with drug makers to get better deals on prices. But, incredibly, not the Medicare program.
The Congressional Budget Office estimates that the government could save $112 billion over the coming decade if Congress reconsidered its 2006 gift to drug makers and gave Medicare the ability to negotiate prices.
Remember that the next time you hear a politician say that the only way to keep the program from going broke is to cut benefits and raise the eligibility age for Medicare from 65 to 67.
In the weeks ahead, in addition to keeping an eye on how health insurers will be seeking to weaken the consumer protections in ObamaCare so they can keep meeting Wall Street’s profit expectations, I will explore the many problematic issues that Congress’ hands-off attitude toward the pharmaceutical industry has on the American health care consumer — both on pricing and on drug makers’ reluctance to invest in new drugs that don’t have blockbuster appeal.
Wendell is a Senior Analyst at The Center for Public Integrity where this first appeared on 2/11/2013.