Goring Drug Companies - A Plan That Doesn’t Help the Elderly

By Michael Fumento

National Review Online, Sept. 25, 2000
Copyright 2000 National Review Online

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During a campaign swing in April while "working" a group of senior citizens, Al Gore walked into a drug store. "One hundred twenty dollars for 30 tablets?" the TV cameras showed him asking the pharmacist. "Four dollars a tablet," said the druggist. "Four dollars per pill?" replied an incredulous Gore. "That’s not a big pill, either."

Would you buy a Medicare drug plan from a man who apparently believes pill prices should be based on size?

That plan would pay half a Medicare recipient’s drug costs up to $4,000. Once the recipient has spent $5,000, the government would pay everything.

The Gore campaign claims it will cost taxpayers merely $253 billion over the next ten years. It’s a mere pittance for such a noble cause, we’re told. And Gore sells it like a slick TV preacher.

While making another campaign stop at a drug store, Gore hears a little old lady say that she’s forced to pick and choose which of her prescriptions to fill so that she will have money left to eat. "We’re going to end that depression!" he proclaimed. "We’re going to lift you up!" Ah, shades of Elmer Gantry.

On its face, it’s just another scheme to implement Hillary Clinton’s national health-care plan piecemeal, after the effort to shove it through all at once failed. Worse yet, "There’s no question it will lead to price controls," says University of Southern California health economist Joel Hay.

Why? "It’s a pipe dream to think it’s only going to cost 253 billion over ten years," he says. The Gore plan is based on current expenditures and trends. But as we know, when something is subsidized people buy more of it. Drugs are no exception.

For example, people now using generics might switch to brand names. Or they’ll switch to a drug that has only marginally improved benefits but perhaps costs five times more. And if they’ve already spent $5,000 it’s not even a matter of being subsidized; they’ll be getting the products for free.

Indeed, the Congressional Budget Office already estimates that a decade of the program will cost not $253 billion but a cool $338 billion, or roughly $2,500 per taxpayer on top of current Medicare taxes.

And don’t think Gore would hesitate for a nanosecond to slap on price caps. He’s chomping at the bit.

Gore’s approach to drug-price issues has always been characterized by populism and demagoguery with no evidence of any understanding of how drug pricing works.

"All my public life I’ve stood up to the big drug companies and fought against price-gouging," he said recently, "As president you can count on me to take on the powerful forces so you can get the prescription-drug coverage you deserve."

The problem is, this isn’t like fighting those evil Fascists back in WWII. The people Gore is "taking on" are the very ones producing the drugs the elderly and all of us need. And the pricing policies of his perceived enemy are just a bit more complicated than he seems to think.

On average, it costs a company about half a billion dollars to bring one new medicine from the lab to patients, according to a January 1996 report by the Boston Consulting Group.

According to the Tufts Center for the Study of Drug Development at Tufts University, only one in a thousand compounds that enter pre-clinical testing make it to human testing. Of these, only one in five is approved for sale. But it pays off. We know from hard data that more Americans are living long enough to be seniors, and that seniors themselves are living longer. But more to the point, surveys show that today’s elderly are healthier than ever, as well.

Only 12 percent of our elderly say they’re in poor health, while 44 percent say they are now living "the best years of their lives," according to a Department of Health and Human Services Report.

"Old" and "decrepit" are no longer synonymous. And much of this is because of pharmaceuticals.

Consider the impact of just two new drugs, Vioxx and Celebrex, which are anti-inflammatory drugs like aspirin and ibuprofen. Do they cost more? You bet.

One hundred tablets of over-the-counter aspirin cost about $3, compared with 30 capsules of 100 milligrams of Celebrex, which cost about $50, and 30 capsules of 12.5 milligrams of Vioxx, which cost about $85.

But is this price-gouging? Hardly. Have you noticed anybody pulling aspirin and other pain-relievers off the counters? The new drugs simply give consumers a choice, one which arthritis sufferers may well wish to make.

The advantage of the new drugs is that they don’t cause bleeding ulcers like the others do. According to a 1999 New England Journal of Medicine study, the old-line anti-inflammatories cause over 100,000 hospitalizations each year in this country and over 16,000 deaths from bleeding ulcers. If these analgesics were given their own category, the report stated, they would "would constitute the 15th most common cause of death in the United States."

Further, the New England Journal researchers estimated the cost of those 100,000 hospitalizations at $15,000 to $20,000 apiece. So ultimately, what’s cheaper: The older tablets or the "price-gouging" newer ones?

Meanwhile, drug companies are now working on 241 medicines to fight major causes of disability in the elderly, according to a new survey by the Pharmaceutical Research and Manufacturers of America. These include Alzheimer’s, arthritis, osteoporosis, Parkinson’s disease, and others. That 241 is up from 191 in 1999.

Gore’s Medicare plan and the ensuing price controls will "dry up research and development money needed for these new drugs," says Hay.

Yes, there truly are elderly people who have trouble buying the drugs they need. Although the poorest are helped by Medicaid, about 19 million seniors in this country, or roughly half those 65 and older, have little or no drug coverage, according to the Congressional Budget Office.

The Gore drug plan: pills should be priced on the basis of size.

But, "Only 10 percent of seniors spend more than a thousand dollars a year out of pocket, and only 4 percent spend more than $2,000 out of pocket," notes Hay. Far from eating cat food, he says, "The average senior citizen spends more on going to restaurants than for prescription drugs."

So, "If we really wanted to target those people with low-income and huge drug expenditures we could easily do that at low cost."

Further, a study published earlier this year by Milliman & Robertson, the nation’s leading actuarial consulting firm on health benefits, concludes that senior citizens could have comprehensive coverage for prescription drugs in addition to other Medicare benefits with virtually no increase in personal costs if private health plans were allowed to administer the benefits.

Produced for the National Center for Policy Analysis in Dallas, the study concluded that private health plans can eliminate much of the waste and inefficiency in Medicare and apply the savings to the cost of prescription drugs not currently covered.

This may or may not prove the complete answer to the problem. Remember this, though. Politicians excel in producing hot air and effluents put out by male cattle. But no politician ever invented a drug and brought it to market.


Read Michael Fumento’s additional work on economics and on politics.