The pharmaceutical industry is gouging American consumers and taxpayers in advance of health care reform, and it should not get away with it. Over the last year the industry has increased prices by about 9 percent even as overall consumer prices have fallen. The spike — by one report the highest since 1992 — suggests that drugmakers are trying to reset the price point for their products before Congress adopts cost-containment strategies. So much for the industry's promise of $8 billion in annual savings as a contribution to health care reform. This year's price increase would make that meaningless and add an estimated $10 billion annually to the cost of medicines.
Sen. Bill Nelson has called for an investigation into this apparent self-dealing. The Florida Democrat asked the inspector general at the Department of Health and Human Services to look into the dramatic price increases and how they would impact the Medicare and Medicaid programs.
Nelson is right that an investigation is warranted. Drugmakers' decision to raise prices even as the nation debates how to provide health care for the uninsured and underinsured, indicates that Big Pharma is not a partner in this process. This should nullify the industry's deal with the White House and Senate.
As it turned out, the deal wasn't a particularly good one anyway. In exchange for the government not negotiating drug prices, the industry offered to provide discounts on brand-name drugs to Medicare beneficiaries who reached the so-called doughnut hole and would have to bear the entire cost of their medication. Drugmakers promised to contribute a total of $80 billion over 10 years. If it initially appeared to be a good-faith offer, the recent maneuvering suggests otherwise as drug lobbyists use the agreement as a shield against further concessions. Meanwhile, the industry stands to gain tens of millions of new customers under health reform.
The health bill passed by the House is a far better counterbalance to the powerful industry. It authorizes the Health and Human Services secretary to negotiate lower drug prices for Medicare recipients and in any public option plan. And the House bill would force an estimated $150 billion in savings over 10 years through discounts and rebates.
The industry's justification for the higher drug prices is that they are needed to invest in research and development. That is always what is said when drugmakers want to charge Americans outlandish sums for their medicine. The more likely truth is that the industry snatched the opportunity to position itself with higher prices before health reform exerted downward pressure on prices.