Copyright © 2000 The Seattle Times Company
Editorials & Opinion : Sunday, April 30, 2000

Rx for prescription drugs

by Kathleen O'Connor
Special to The Seattle Times

TV ads show buses trucking seniors to Canada to buy drugs they can't afford here. Others show buses trucking Canadian seniors here for services they can't get there.

Prescription-drug ads burst from magazine pages and TV commercials on the latest drugs.

Politicians rail against drug costs for seniors and lament our costs in comparison to Mexico's or Canada's.

This is the climate of charges and counter charges that surrounds the debate over the costs of prescription drugs in America.

While I waited for a prescription to be filled recently, a woman in her 80s brought in her prescription. When told the cost would be $100 a month, she stood there and wept, then turned and left empty-handed.

She is not alone. Nearly 40 percent of all seniors have no prescription benefit. Most Medi-gap (supplemental) policies with a prescription benefit have a $250 deductible, 50 percent co-payment and a yearly maximum that ranges from $1,250 to $3,000 before it reaches a maximum - totally inadequate for today's needs. Seniors use medications more than any other group.

The older the person, the more likely she needs medications. The average 75- to 80-year-old Medicare beneficiary is a woman with three or more chronic diseases. If her husband has died, her income is reduced by half. Some live on as little as $400 per month with Social Security as their only income. She can't even afford AARP's $8 membership fee.

Peeling the onion

Simply put, the seniors who don't have drug coverage can't get discounts and rebates nearly everyone else gets. This makes them the only group that pays full fare for prescriptions. Most employees get discounts. Seniors with supplemental insurance get discounts. People on Medicaid get discounts.

This most vulnerable group pays 83 percent more for medications than nearly everyone else. Drug costs are going up for everyone.

According to the William M. Mercer 1999 Annual Employers Survey, drug costs were up 7.3 percent, ahead of physician and hospital costs (5 percent to 6 percent), but on par with most employers' premium increases (6 percent to 7 percent). When Medicare is added, drug costs have double-digit increases.

Pharmaceutical companies rank No. 1 of 37 industries in terms of return on revenue, surpassing all other Fortune 500 companies in 1998. Yet, they also invest more in research and development than any other industry.

When it comes to costs, hospitals are the Goliath: $401.3 billion in 1999. Physicians were next at $241.5 billion. Prescriptions ranked third at $100.6 billion. Followed by nursing-home care at $90.1 billion. Not a nickel-and-dime industry.

The only thing rising faster than drugs and insurance premiums are some insurance executives' salaries. Premera gave a whopping 61 percent increase to its retiring executive and then raised itsindividual insurance rates by 24 percent after a bill they promoted passed the Legislature. Ten other Premera executives got 28 percent increases.

Group Health's executive got a 20 percent increase.

Who calls the shots?

Congress defines what Medicare covers. The Health Care Financing Administration (HCFA), which manages Medicare, decides what they will pay. But, not quite. Congress also sets payment rates, which set rate changes on hospitals, doctors, home health care, and nursing homes. Drugs are not a Medicare benefit, so they were not included.

The private insurance industry historically has taken care of pharmaceuticals in their supplemental policies. And did they ever use drugs to their advantage. Most early Medicare HMOs threw in prescriptions and the promise of "zero" premiums to dominate the senior market. When that backfired financially, they dumped prescriptions or dumped the HMO, leaving millions of seniors stranded from Seattle to Los Angeles and Orlando.

While drug costs have been increasing, even HCFA says the growth in pharmaceutical spending is expected to ease as fewer new drugs come onto the market and consumers' cost-sharing starts to stabilize.

Yet, the pressure to cover drugs is immense and fraught with hyperbole.

Candidates voice outrage that we pay more for drugs than Mexico, Canada or Europeans while they simultaneously bash socialized medicine. And, if we think the government wants to put the reins on the pharmaceutical industry by rate regulation, we're kidding ourselves.

Between 1992 and 1997, pharmaceutical earnings grew nearly 11 percent a year, which outdid the S&P 500 index by 90 percent. Hamstring the pharmaceutical industry when we need the hot economy to keep Medicare from being insolvent? Not a chance.

And to solve the problem?

More than five proposals now exist in Congress to add a drug benefit to Medicare, with more sure to come. Solutions fall into three camps calling for radical Medicare reform:

• Marketplace, private insurance and consumer choice;
• Government subsidies and management;
• And one that gets Congress off the hook completely and passes the quagmire to the states to solve.

Virtually all proposals include an income test - a first for Medicare and a gigantic hurdle. Almost all include stop-loss insurance in case someone made a really big mistake about costs.

So, if a drug benefit is added to Medicare, where will the money come from to pay for it?

Payroll taxes that go into the trust fund now? Employers will revolt. The surplus? Only if the economy stays hot.

We're gambling big time. No one has a clue how this will work, yet everyone is making political hay just as they did with the last attempt at Medicare reform in 1989 which was reversed a year later.

When it comes to proposals, Washington's Sen. Slade Gorton has one as well that takes the cake. Gorton blames drug companies for charging more here than in Canada and Mexico: 95 cents a pill for Prozac in Mexico compared with $2.21 a pill here.

Gorton seeks to amend a 60-year-old congressional act that prohibits manufacturers from undermining American businesses by selling the same product overseas at discounts.

The average Mexican earns $7,700 a year compared with our $30,200 per-capita average. That means we pay 2.3 times what they pay in Mexico for Prozac yet we earn nearly four times as much.

This is exactly the problem in this election year. We are all outraged at the cost differences. And, where does that get us? Nowhere.

Solving the wrong problem

The current, sweeping solutions are virtually doomed to failure. An income test for Medicare is bound to rebound. Controlling prices by rate regulations is only blindly following already flawed public policy. Framing the issue as marketplace vs. government-run health care only serves to divide us. And, we are rushing for solutions in an election year, so we have the rare opportunity to foul up big time.

None of the solutions we rushed to in the past has worked. Remember the promise of managed care? Well, we got it. Who likes it? Does it work? We dropped Medicare reform 10 years ago like a hot potato because we rushed to do the wrong thing.

Solutions exist. We don't have to overhaul all of Medicare to find them. We need to focus on the problem: How can we get affordable medications for a vulnerable group of seniors who are the only ones paying full fare?

We need to ask this of an independent commission that includes employers, pharmaceutical companies, consumers, policy officials, clergy and others. All sorts of examples exist: purchasing pools, discounts and other arrangements. We do this for Medicaid. We do this for employers.

Given our track record for other Medicare or health-care reform, these sweeping proposals are doomed because they have more to do with getting elected than helping that woman at the pharmacy.

We need to get the solutions out of the hands of an election-year Congress trapped between campaign contributions and the senior vote.

So, create an independent commission in which all the stakeholders can find common-sense solutions to a problem that is more than solvable - and, much, much more than TV ads fighting over which country sends more buses of seniors to the other.

Kathleen O'Connor, MA, is a health-care industry analyst with more than 20 years of experience in various sectors of the health-care industry. She is based in Seattle.

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