Medicare Prescription Drug Scam Jumps From $400 Billion To Over $1 Trillion

Evelyn Pringle February 21, 2005

In December 2003, the Medicare Prescription Drug and Modernization Act was passed. Many seniors expected the new law to provide relief for the ever-rising prescription drug costs but they were sadly mistaken.

We recently learned that instead of costing tax payers $400 billion, the bill is going to cost more than $1.3 Trillion, over the next 10 years, and the only ones benefiting from it are the pharmaceutical companies and HMOs.

The new law will not save tax payers any money because it specifically bars Medicare from negotiating for better drug prices like the Department of Veterans Affairs does, and it bans the importation of cheaper drugs from neighboring Canada and other countries. The notion that the bill will provide any meaningful savings for seniors is unlikely.

Due to its insider knowledge about the pending Medicare prescription bills in Congress, and the amount of money up for grabs, the pharmaceutical industry lobbied non-stop in 2002, to make sure that its favored version of the bill got passed. It spent a record breaking $91.4 million on lobbying, and 24 separate companies and trade groups spent over $1 million each. The top 10 drug companies and trade associations together, spent an estimated $55.8 million on lobbying.

However, what’s $55 million compared to the $35.9 billion in profits that were realized by the same 10 companies in 2002. Since Bush took office, pharmaceutical industry profits have soared past all other business sectors, at a rate of more than 5 times greater than all other industries in the Fortune 500.

Prohibits Medicare From Negotiating For Lower-Priced Drugs

According to Senator Edward Kennedy, “The single most irresponsible provision in the Medicare bill is the prohibition that prevents Medicare from negotiating lower-priced prescription drugs.”

Prescriptions bought by the VA cost at least 24% less than the average retail price, said Steve Thomas, director of the program. For many drugs, the VA negotiated price is on average 40% less that what most consumers pay, Thomas said.

When Bush was asked why he barred Medicare from bargaining for lower prices on behalf of its beneficiaries, he offered the feeble excuse that he was concerned that if Medicare negotiated with drug makers, it would amount to a government monopoly and a form of price controls.

That excuse is ridiculous. Although Medicare might be a major player in the market, being recipients are expected to buy over $1.5 trillion worth of drugs over the next 10 years, it could hardly be considered a monopoly in a market projected to earn about $4.6 trillion.

During the debate on the Medicare bill, the Department of Health and Human Services Inspector General said, “Medicare and its beneficiaries would save $1.6 billion a year if 24 drugs were reimbursed at amounts available to the VA.” As an example of the possible savings, he listed the price of the asthma treatment drug, Albuterol, that was being sold for 47 cents, while the VA was paying only 5 cents.

Comptroller General, David Walker, of the General Accounting Office (GAO), has been recommending that Medicare should follow the VA model for years but Bush refuses to take the advice of our government experts.

Discount Drug Card Scam

Shortly after signing the new Medicare bill, Bush announced a plan for a drug discount card program. To enroll in the program seniors had to pick one of Bush’s approved providers. A card could cost up to $30, and once chosen, seniors had to remain with the same provider for a year. No discounts were guaranteed, drug prices could change at any time, and drugs offered could also change at any time.

The card program in itself, is a scam. There are over 40 million Medicare beneficiaries in the country. Multiply that number times $30 and the first expected windfall of the scam becomes obvious. However, seniors were not half as dumb as Bush thought, and only a fraction of the beneficiaries even bothered to buy the cards.

Because they had insider knowledge about the program, the drug companies simply raised prices in anticipation of the cards being issued. In the first quarter of 2004, right before the program went into effect, some drug makers raised prices almost 7 times as fast as producers of all US goods, according to a study by the senior advocacy group AARP.

Bush claimed that using the cards would result in discounts of 10 to 25%, which amounts to a 0% discount considering the fact that drug prices increased by nearly 22% over the past 3 years. The dramatic increase in prices offset any potential savings on drugs purchased with the cards. Only the drug companies stand to make money with this deal.

Due to the enormous increase in drug costs, many seniors are skipping doses, cutting pills in half, or not taking the medication at all. In the long run, these drastic measures can actually prolong an illness and add to the expense of the treatment.

Discount Card Prices Verses Non-Card Prices

In April 2004, the minority staff of the House Government Reform Committee, released a study that compared prices available to seniors who would pay the $30 to buy a card, against prices available to seniors who did not.

The study used prices from 3 card providers, ExpressScripts, Advance (Advance is owned by Bush-buddy David Halbert, who crafted major portions of the bill), and Walgreens. Prices of these companies were similar to all others. The drugs used in the study represent a month’s supply of the top 10 brand-name drugs used by seniors.

The study compared the card prices to (1) prices in Canada; (2) prices negotiated by the Department of Veterans Affairs; and (3) prices charged by internet outlets and

Card prices were much higher than prices in Canada. A month’s supply of the 10 drugs in Canada cost $596, while prices were $972 with Walgreens, $1,046 with Advance, and $1,061 with Express. The average card price was 72% higher than in Canada.

The difference for some drugs exceeded 100%. For instance, Celebrex, costs $81.28 at Walgreens, but only $38.69 in Canada; Prevacid was $129.68 with Express, but only $56.54 in Canada.

The comparison to drugs purchased by the VA, also found card prices much higher. With the VA the10 drugs cost $587, while the average price with the cards was $1,026, or more than 75% higher.

A month’s supply of the drugs even cost less on internet sights and While the average card price was $1,026, the drugs only cost $959 at

In June 2004, Families USA released the results from a study that tracked price changes for the top 30 brand name drugs prescribed to seniors. According to the report, between January 2001 and January 2004, the prices of the top 30 drugs increased by nearly 22%. On average, the cost of the drugs increased by 6.5%, while in the same time-frame, the overall rate of inflation, excluding energy, was only 1.5%.

Of these 30 drugs, 28 increased in price by 2 or more times the rate of inflation; 21 increased by three or more times the rate, and 14 increased in price by more than 5 times the rate of inflation.

The drug companies also raised prices at a break-neck speed right before the cards came out. For example, Nexium is used to treat heartburn, a problem for more than 40 million people. Democratic Rep Henry Waxman released a study that showed that in one month, between May 3 and June 3, 2004, the price of Nexium increased by 13%.

In 2003, the drug company AstraZeneca spent $411 million promoting the drug. And in return, it had sales of $3.3 billion, and became the 7th largest selling brand name drug according to the trade publication Pharmaceutical Executive.

Generic drug prices were also spiked. A report by the Wall Street Journal revealed that pharmacies were buying generic drugs for a few cents and marking them up nearly 200%. For example, a 90-day supply of generic Prozac costs only $4, and was sold for $14.94 at Yet the Medicare website showed one card sponsor charging $84.15.

Lawmakers On Both Sides Of The Isle

The importation issue is not only important to senior citizens, it affects all Americans. And they are speaking out. On December 22, 2004, Rep Bernie Sanders from Vermont issued the following statement in response to a Task Force Report, that came out against drug importation, from the Bush administration:

“It is ironic that two weeks after the HHS announcement that … flu vaccine doses will be imported from Germany, HHS is … saying drug importation cannot be done safely and affordably. This report is reflective of the entire Bush policy to protect the financial interest of the pharmaceutical industry over the health of regular Americans.”

Sanders claims it is absurd to say we can’t import drugs safely. “If we can import beef, poultry and vegetables … there is no reason we cannot figure out a way to safely import prescription drugs. The momentum remains with the American people,” he notes.

According to Senator Byron Dorgan (D-ND), “The only thing endangered by allowing Americans access to lower-priced FDA-approved medicines from abroad is the incredibly large profits of the drug companies who over-price their medicines in our market, just because they can,” he said.

Importation would be legal if it was up to Republican Congressman Dan Burton of Indiana. During the debate over the prescription drug bill, he attempted to pass a provision that would have legalized importing drugs from Canadian with safeguards.

But Burton says he couldn’t get it passed because he ran into two brick walls: the drug industry and the government: “This is a perfect example, in my opinion, of where a special interest, the pharmaceutical industry, has been able to manipulate the Congress and the government of the United States to their benefit, and to the detriment of the American taxpayer and the American people.”

How any politician can look an American citizen in the eye and argue against drug importation is beyond me.

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