PUBLIC RADIO'S MARKETPLACE COMMENTARIES:

How Big Pharma Plans to Keep the Medicare Drug Money

Robert B. Reich

Marketplace,

November 29, 2009

The new Democratic congress hasn’t even begun work and already the pharmaceutical industry – known as Big Pharma, in Washington – is attacking the Democrat’s plan to have Medicare use its huge bargaining power to negotiate lower drug prices for seniors.

First, Big Pharma says it will amount to government price controls. That’s nonsense. Medicare won’t be setting prices. It will be negotiating them. The Veterans Administration already negotiates drug prices on behalf of its 4.4 million enrollees. Medicaid negotiates on behalf of millions of Medicaid recipients. Why shouldn’t Medicare use its even bigger bargaining clout to get bargains for its nearly 23 million enrollees?

Ever hear of bulk discounts? It happens all the time in the free market. Think of Wal-Mart. In fact, Wal-Mart is using its bargaining power to get lower drug prices for its customers. Given its size, Medicare could be getting the biggest bulk discount of them all, and passing the savings on to the nation’s seniors.

Big Pharma also argues that if Medicare tries to negotiate lower drug prices, some drugs will not be available to seniors because their manufacturers just won’t sell them at lower prices. But that shouldn’t be a problem. Medicare beneficiaries who want these drugs could still get them through private insurers, if they chose that option. The whole point is for Medicare to set up a plan that competes with the private companies, and offers seniors the choice of lower-priced drugs.

Finally, Big Pharma contends that if Medicare gets much lower drug prices, drug companies won’t have enough money to develop new drugs. But wait a minute. These are the same drug companies that just a few years ago lobbied intensively for the new Medicare drug benefit because they wanted access to the hundreds of billions of dollars that came with the program. Now that the money is flowing, it’s disingenuous for them to argue they won’t have enough money to develop new drugs simply because Medicare beneficiaries will get a drug discount.

The only thing that might stop the new Congress from going through with this sensible plan is huge bargaining power of a different kind. I’m talking now about politics. Because when it comes to making campaign contributions and hiring platoons of Washington lobbyists, Big Pharma has more bargaining clout than almost anyone.