Burr, Dole…Yes, to Corporate Welfare…No, to You and the Free-Market

Sen. BurrEvery politician dreads the moment when the special interest group which paid for their campaign is in direct opposition to the well-being of the citizens they were elected to represent. Such is the case with Senator Burr, Senator Dole, and the pharmaceutical industry. Last week the Senate blocked a bill which would have allowed the government to negotiate lower drug prices on the 2003 Medicare Drug Bill. The vote was 55 “yes” (49 Democrats, 6 Republicans) and 42 “no” (42 Repubs, 1 Dem). 60 “yes” votes were required to pass the bill. Senators Burr and Dole voted no.Sen. Dole

This is a long post but please bear with me. There are some fun facts on the pharmaceutical industry that you may not be aware of. Also, this Senate vote is a perfect illustration of what is wrong with our political system in general and our North Carolina senators in particular. It seems that on most votes our senators favor corporate interests over the interest of North Carolina residents.

That Senator Burr and Senator Dole are indebted to the pharmaceutical industry is not in dispute. Both senators have accepted significant contributions from the pharmaceutical industry. Richard Burr, who received more money from drug companies than any congressional candidate in 2004, has a career total of $585,149. Elizabeth Dole’s career total is “only” $208,672. However, most of that money was when she was elected in 2002 and ranked 4th on the pharmaceutical industry contribution list. Since she is running for re-election in 2008, I would be shocked if she is not in the top three this election cycle.

For North Carolina citizens, the 2003 version of the Medicare Drug Bill short-changes them in two ways. First, it is fiscally irresponsible. This is a I.2 trillion dollar entitlement, with drug company profits estimated at 139 billion dollars. As taxpayers, we are responsible for paying all of the bills, but have no ability to control any of the costs. Why not let the efficiencies of the free-market work for the taxpayers, for once? Secondly, it is morally irresponsible. Partly to maintain drug company profits, a gap in coverage (the “doughnut hole”) is required. Unlike other forms of insurance, Medicare Part D has a bizarre gap in coverage between $2,250 and $5,100 of drug expenses. This makes no medical sense since it effectively penalizes the sickest patients; usually those with chronic illness who can least afford an interruption in their medication. Allowing the government to negotiate drug prices would signal a shift of power from corporate interests back to the people, where it belongs.

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Does the pharmaceutical industry need, or deserve, preferential treatment? I would argue no. Here’s why.

Profits: The pharmaceutical industry is the corporate kingpin in generating high profit margins, and has been for 25 years. In 2003 the ten pharmaceutical companies listed in the Fortune 500 had greater profits than the other 490 companies combined! Historically, the pharmaceutical industry averages about 15% profit margin, which is 3 to 4 times the average company on the Fortune 500 list. Pity poor Wal-Mart, which limps along at a 3.6% profit margin. Even Exxon, with their recent record breaking quarterly profit of 10 billion dollars, only had an 11% profit margin.

Clearly the pharmaceutical industry, awash in profits, does not need further political protection from free-market forces. So, let me anticipate the industry’s rebuttal on why they deserve continued corporate welfare, and shatter some myths along the way.

Pharmaceutical companies need high profits because of high research and development costs. Finding new drugs is a high-risk business. It’s the industry’s dirty little secret that they spend twice as much on marketing than they do on research. Who can forget the vivid imagery in the Levitra commercial of the “football” passing through the “tire swing?” Why don’t drug companies slash their marketing expenses and triple their research budgets? Because the drug companies are more about the merchandising of brand-names than they are about being research institutions. As to high risk, I would only say that an industry that historically and consistently outperforms every sector of our economy over the past 25 years is a pretty good bet.

Protect the drug companies, or no more miracle medications. Well, no doubt we need innovative break-through medications. Unfortunately, the pharmaceutical industry hasn’t been discovering many of them lately. Maybe that’s because they spend most of their money and energy on developing “me-too” drugs that provide marginal improvement on existing (and cheaper) medications. If you think we need a 6th medicine for indigestion ($4 per pill) or a 4th drug for erectile dysfunction ($11 per pill), than you should be happy with the current state of pharmaceutical research. Frankly, while Congress is at it they ought to require that new drugs outperform existing medications, rather than placebo’s, before FDA approval. Maybe then we would see some real progress in treatment or prevention of cancer, diabetes, and heart disease.

Besides, advancements in basic science are the foundation by which truly innovative drugs are discovered. These discoveries are far more likely to occur in government institutions (National Institute of Health or National Cancer Institute) or academic institutions (often funded by taxpayers through federal grants). Taxpayers pay twice: they fund the basic research and then pay exorbitant prices when the drugs are approved.

Price negotiation is the first step towards “socialized medicine.” Nonsense. This is simply about letting your tax dollars compete in the free market against the Medicare Part D plans which currently exist. Why shouldn’t taxpayers be able to utilize the efficiencies of the free market as corporations do?

Price negotiation is price “fixing.” Again, nonsense. This is about wanting the government to be able to negotiate drug prices, not mandate price controls. However, the “price-fixing” argument should bring howls of protest from every physician or hospital employee. Medicare and Medicaid have “fixed” prices on physician services for years. And the Medicare reimbursement is usually “fixed” at a rate that is 20 to 50% lower than what the private insurance companies have decided is “usual and customary.”

The government shouldn’t decide which medications I can have. Too late. Every private insurance plan that offers prescription coverage has a “formulary” with restrictions on which medications are available. Believe me when I tell you that when Blue Cross or Cigna creates a preferred drug list, it has everything to do with their profitability and little to do with your health needs. Moreover, the government already has in place a very satisfactory and cost efficient formulary. It’s called the Veteran’s Administration (VA) Formulary. If it’s good enough for our veterans than it’s a reasonable choice for the rest of us, too.

American consumers pay the highest prices because they must subsidize the rest of the world where price-controls are in place. This is not only a lie, but a very revealing one. For years, drug makers have told the IRS that their profits come mainly from international sales. As the head of Pfizer’s US operations proudly told me, “Pfizer is profitable in every region we operate.” Clearly, international pharmaceutical sales are robust. In addition, their overseas markets have provided a tax shelter. Only when enticed by a tax holiday in 2005, which allowed them to “repatriate” their profits at a 5.25% tax rate, rather than the standard 35%, would the drug companies return 75 billion in profits from their international tax havens. This type of (apparently legal) aggressive tax sheltering is the drug company version of the Cayman Islands mailbox “headquarters.” The pharmaceutical industry wants the constitutional and legal protections of conducting business in the United States; they just don’t want to pay their fair share of taxes. This is profiteering, not patriotism.

Once again Senator Burr and Senator Dole have chosen to ignore the needs of their constituents because they are indebted to corporate interests. And this time they said to hell with the free market and fiscal responsibility, too. Why do we elect these people?

11 Comments

  1. Momoaizo

    April 26, 2007 at 9:22 am

    Great diary! Have been watching commercials by Phrma and their CEO, Billy Tauzin trying to tell Srs. that it is in their best interest to let the Pharma industry set the prices. It’s time that more of this information was repudiated with the cold hard facts. This isn’t about what’s best for the Srs. of our once great nation, this is about profits, pure and simple!

    Please Mr. Turner, bring this over to BlueNC and it has been promised that it will be front-paged in a NY minute!

  2. lcloud

    April 26, 2007 at 9:24 am

    Wow – thanks for this inciteful indictment of the big pharmaceutical industries, and for showing their relationship with our illustrious Senators. I had suspicions that was why they voted the way they did. Please consider reposting this at http://www.bluenc.com so that more folks will read this.

    Thanks!

  3. Dallas Woodhouse

    April 26, 2007 at 9:37 am

    The federal govt. does not negotiate drug prices, they set them. Look at the veterans drug plan

  4. Anglico

    April 26, 2007 at 9:44 am

    Even better.

  5. sturner

    April 26, 2007 at 10:56 am

    Dallas, you are wrong. The government (in this case the VA)definitely negotiates drug prices with the pharmaceutical companies. And my patients who get their medications through the VA are reasonably satisfied with their formulary. For instance, the VA formulary favors Zocor over Lipitor, Lisinopril over Altace, etc. If Pfizer (Lipitor’s maker) doesn’t want to match the price the VA negotiated for Zocor, that is their choice. Just stop whining about it and trying to buy more politicians to shield your industry from the free-market.

  6. JT

    April 26, 2007 at 12:04 pm

    This senate vote, like the original republican-sponsored, arm-twisting, dead-of-night crooked 2003 vote which created Medicare part D, flies in the face of the (former) conservative mantra that the markets will prevail. The top priority for Republican senators, including Burr and Dole, is to further fund corporate welfare for pharma companies already obscenely profitable. And this, at the expense of the taxpayers. Priceless…

  7. Jerimee

    April 26, 2007 at 12:37 pm

    thank you posting this, what do you think can be done to call more attention to this?

  8. sturner

    April 26, 2007 at 1:55 pm

    Hard to say, Jerimee. I communicated with both Senators in December when the House passed their version of the drug bill and it became clear this issue would swing on getting a veto-proof majority in the Senate. Senator Burr, to his credit, replied (a month later) and actually tried to address my concerns. His reasoning was bogus, however. His basic point was that we should not subject seniors to the “restricted” formulary of the VA. My observation was that if the veteran’s drug choices are so bad, in Burr’s opinion, why didn’t he do something about it. More evidence of “supporting the troops,” I guess. As I imlied above, the VA formulary is fine and could easily be reconfigured to treat the Medicare population. This is not rocket science.
    Predictably, Dole sent a form letter two months later. She is apparently behind an impregnable wall of staffers. Somebody at her office read my communication, decided it was a “healthcare” issue, and sent me a form letter regarding her healthcare “accomplishments.” It did not address this bill at all. I threw it away. I still have Burr’s letter.
    Finally, I sent some version of this to the N&O for their point-of-view feature, but never heard back.
    If nothing else, I would remind voters that every time they or their family members pay cash because they are in the “doughnut hole” they should blame the Republicans who voted for the 2003 Medicare Drug Bill. That out-of-pocket cash your grandparents are paying is going directly and unnecessarily to pharmaceutical and insurance companies. Many seniors simply stop taking their medicines when they fall into the “doughnut hole.”

  9. Jerimee

    April 27, 2007 at 9:16 am

    I think we are going to be seeing less and less of Elizabeth Dole.
    The upcoming Senate race is going the Democratic nominee vs Karl Rove, John Ensign, and Elizabeth Dole staffers. Be on the lookout for more canned answers to complex questions.

  10. sturner

    April 27, 2007 at 10:59 am

    It would be nice for the Democrats to field a candidate with enough name recognition so Dole would be obliged to agree to a series of debates. It would be entertaining to see her have to defend her 6 years as a Bush loyalist.

  11. Grady

    April 27, 2007 at 4:04 pm

    This post is very helpful — I’ve wondered about this issue for some time, thank you for providing such a clear explanation.