We're asking the wrong healthcare question: Part 4

Let's talk about how Congress handcuffs Medicare.

By law, Medicare is prohibited from negotiating drug prices. This applies both to the Part D prescription drug program as well as drugs you may receive during a hospital stay. Medicare is only allowed to ask the drug manufacturer the average sale price of the drug then add 6% to that amount when paying the hospital for the drugs they administer. The manufacturer is free to set its own price.

This process is quite different from what happens in Veterans' Administration hospitals which are free to use their buying power to negotiate drug prices.

Other developed countries regulate the price that drug companies can charge for their products. Not the USA. We pay about 50% more for a drug than in other developed countries.

The drug companies will say that they need to charge high prices to support their research and development programs. Without these programs, they say, new "wonder drugs" will be undiscovered. Brill's article says: "More than $280 billion will be spent this year on prescription drugs in the U.S. If we paid what other countries did for the same products, we would save about $94 billion a year. The pharmaceutical industry's common explanation for the price difference is that the U.S. profits subsidize the research and development of trailblazing drugs that are developed in the U.S. and then marketed around the world. Apart from the question of whether a country with a health-care-spending crisis should subsidize the rest of the developed world--not to mention the question of who signed Americans up for that mission--there's the fact that the companies' math doesn't add up."

"According to securities filings of major drug companies, their R&D expenses are generally 15% to 20% of gross revenue. In fact, Grifols [a major drug company] spent only 5% on R&D for the first nine months of 2012. Neither 5% nor 20% is enough to cut deeply into the pharmaceutical companies' stellar bottom-line net profits. This is not gross profit, which counts only the cost of producing the drug, but the profit after those R&D expenses are taken into account. Grifols made a 32.3% net operating profit after all its R&D expenses--as well as sales, management and other expenses--were tallied. In other words, even counting all the R&D across the entire company, including research for drugs that did not pan out, Grifols made healthy profits. All the numbers tell one consistent story: Regulating drug prices the way other countries do would save tens of billions of dollars while still offering profit margins that would keep encouraging the pharmaceutical companies' quest for the next great drug."

Oh, by the way, many new drugs come as the result of government-supported research paid for by the taxpayer, not the drug companies.

Why did Congress prohibit Medicare from using its vast buying power to negotiate drug prices? Remember, the medical/hospital/pharma complex spends three times what the military/industrial complex does on lobbying. What Will Rogers said in the 1930's seems to still be true: "We have the best government money can buy."