Drugs For Money

Eric Lotke

May 11, 2006

Eric Lotke is a senior research associate at the Institute for America’s Future .

The deadline for signing up for prescription drug coverage under Medicare Part D is looming, and senior citizens are unhappy. The very people who clamored for the benefit are among Part D’s most vocal critics. To understand why, it is necessary to look behind the curtain—to examine who wrote the law and who benefits from it.

Part D is proving to be costly and confusing. Senior citizens derive some advantage, sure, but they are paying top dollar for a middling benefit. The real winners are the drug companies, insurance companies and HMOs. They got the best drug benefit money could buy.

Right now, the most urgent problem is the May 15 deadline. Seniors who don’t sign up by that date will pay penalties of no less than 7 percent of their premiums every month for the rest of their lives. Unlike traditional Medicare, people are not automatically enrolled on their 65th birthday. They must sign up—though half of them don’t know even about the deadline. The Bush administration often minimizes this problem by citing figures that show overall enrollment figures, which are dominated by people automatically enrolled as part of previous coverage under Medicaid, TriCare or other programs. Among voluntary enrollments, only half of eligible seniors have signed up.

Beyond next week’s deadline are fundamental defects that raise costs and vex senior citizens. Confusion begins because Part D denies senior citizens a prescription drug benefit offered directly through Medicare—which is familiar and proven cost-efficient—and requires them to use a private insurance company instead. It’s estimated to raise Part D administrative costs by $5 billion annually. Now senior citizens need to choose among a confusing array of options presented by companies with a profit-driven reason to mislead. A GAO study found that phone operators on the Medicare help line correctly identified the lowest cost plan for inquiring seniors less than half of the time.

The big money, however, is in the drugs themselves. Part D actually forbids Medicare from using its bulk-buying power to negotiate better prices. That defect alone has been estimated to cost $70 billion annually. Sixty-one percent of that money expected to stay with drug manufacturers as added profits. That money is a gift to industry, voted into law by the Republican-controlled Congress.

To get those results, the drug companies flooded the Capitol with money. The pharmaceutical industry contributed $87 million to federal campaigns between 1998 and 2005, including $1.5 million to George Bush. Of course, both parties take drug money—but the trends are hardly bipartisan. During the election cycle when Part D was written, fully 75 percent of contributions went to Republicans. Just 25 percent went to Democrats, the party that said Medicare should use its bulk-buying power to negotiate lower prices.

The pharmaceutical and health products lobbying operation is the biggest in the country. Drug manufacturers spent $239 million on direct lobbying in 2003 and 2004 alone, the years surrounding the passage of Part D. In 2003, when Part D was being considered, drug companies hired 824 lobbyists—more than one for each of the 535 members of Congress.

In 2002, the drug industry contributed $41 million to “front groups” such as United Seniors of America and the 60 Plus Association that pretend to represent grassroots senior citizens. These groups have trivial numbers of real members; most of their budgets come from industry. They broadcast television ads and send direct mail to people in competitive congressional districts, always taking positions that favor the drug industry.

Together, the drug industry and government also swung the revolving door. Former Medicare Administrator Thomas Scully, received an “ethics waiver” from the Bush administration that allowed him to negotiate his job as a drug industry lobbyist while still developing the text of the bill in Congress.

Over on the Hill, former Representative William J. “Billy” Tauzin , R.-La., was the chair of the congressional committee with jurisdiction over Medicare when Part D passed. He was so central to the process he was dubbed the “architect” and “principle author” of the act. Tauzin then resigned his seat in Congress to become CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), the industry’s political action committee. In his new home Tauzin brings home roughly $2 million a year in salary, perks and benefits. Tauzin doesn't accept flights from private industry to vacation spots in Florida any more; now he’s flying other people.

The nation’s capitol is awash in drug money. The Part D solution is to extend the deadline and require Medicare to use its bulk-buying power to negotiate lower prices, like the Veterans Administration does. The solution to the money problem is farther off. The ethics reforms presently under consideration barely scratch the surface. In the end, wholesale reform of campaign financing and lobbyist disclosure will be needed. Until that time, seniors are right to complain.