Drug Companies Have A New Idea: Let Older People Go On Welfare

Posted: May 30, 1992

The Pharmaceutical Manufacturing Association, the national trade association and lobbyist for drug companies, has proposed a so-called solution for Pennsylvania's prescription drug program for the elderly. It's a bit like the suggestion Marie Antoinette made when the French didn't have bread to eat.

"Let them eat cake," she said.

What the drug companies are suggesting is that the state force low-income older people to go on welfare to receive their prescriptions, as an alternative to the state's financially pressed drug program.

Through proceeds from the lottery, the Pharmaceutical Contract for the Elderly (PACE) program reimburses pharmacies for prescription drugs for

qualified moderate to low-income people 65 years of age and older.

The welfare program that the drugmakers are talking about is known as Healthy Horizons. A federal program in which the state and federal government share costs, Healthy Horizons offers low-income Medicare recipients help in paying Medicare premiums, deductibles - and prescriptions. It is a good program for those who meet the stringent guidelines.

However, this "let them go on welfare" tactic is a morally bankrupt argument from a drug industry that:

* Enjoys profits during a recession that are three times higher than the

average Fortune 500 company;

* Sets prices arbitrarily (as recently shown by Johnson & Johnson's pricing of a drug for colon cancer 100 times higher than what it charges veterinarians for the same medication to treat worms in sheep);

* Spends $5,000 per physician annually in the United States to influence them to prescribe their brand of medicine;

* Receives windfall tax write-offs by exporting jobs and relocating plants to Puerto Rico.

The bottom line of forcing PACE cardholders onto Healthy Horizons is this: For every dollar saved in the PACE budget, the state would spend $3 from its welfare budget.

To most people, it does not make sense for government to spend more to save less. But to drug companies it is sensible - just look at the tax breaks they have received at the expense of taxpayers.

Congress has allowed lucrative tax breaks for corporations who locate plants in Puerto Rico. In fact, according to a recent General Accounting Office report, for each job paying $26,500 that drug companies created in Puerto Rico, they netted on average $71,000 in tax breaks in 1987. In return, Americans pay prices that are 50 to 60 percent higher for drugs than any other developed nation in the world.

It is this kind of spin on reality that the drugmaker-lobbyists are peddling to the Pennsylvania Senate. By convincing lawmakers that their welfare strategy will save the state money, they are hoping to gut two Department of Aging proposals that would help keep the lid on drug prices in the state next year.

Those two proposals include drug companies giving a rebate to the state as a major, high-volume purchaser and a system to allow substitution of less expensive A-rated generic drugs for brand-name drugs.

The Department of Aging sees these two price-cutting proposals as crucial, especially after its experience this past year.

PACE reimburses one-fifth of all the prescription drugs dispensed every year in Pennsylvania. It has become the largest program of its kind for the elderly in the country, spending $4.4 million each week for 375,000 people.

Based upon PACE's high volume of business, drug companies were forced last year through law to give PACE a rebate similar to the price breaks it gives other high-volume purchasers. The rebate, however, was based on a flat 12.5 percent discount on brand-name drugs and 10 percent on generics.

Even so, drug price inflation was so high last year (four times higher than the Consumer Price Index) that even with a $27 million rebate from the drug companies, PACE still had a net loss of $3.7 million. This rebate legislation ends next month.

To correct this inequity, a "Pace Rescue Plan" is under consideration by the state legislature. The bill would continue the flat rebate but would allow an additional rebate when a drug company hikes its prices by more than the general inflation rate. This measure is known as indexation. It is the only way that PACE can protect itself from unreasonable drug price increases.

The rescue plan would also call upon PACE cardholders to take the less expensive, but high quality generic drugs instead of brand names, when available - an initiative that would save the state $15 million next year.

Advocacy groups representing thousands of older Pennsylvanians such as the American Association for Retired Persons, the Pennsylvania Council on Aging, Action Alliance of Greater Philadelphia and the Pennsylvania Senior Center Association strongly support both measures.

In March, the House of Representatives passed the plan. But last week, under obvious pressure from the drug industry, the Senate Health and Welfare Committee, in closed session, stripped the generic provision from HB2442. There are reports that key senators are also prepared to strip the bill of its indexation provision in the next few weeks. This will mean that PACE will take an additional $11 million hit.

Of course, we can sustain this $26 million hit because the elderly can go on welfare, so say the drug makers.

It is true that the drugmaking industry in Pennsylvania has a strong presence in the state and we should be grateful for their business since it means jobs and revenue. But being grateful and being taken are quite different. Why should government subsidize one of the richest businesses in the world?

Perhaps if the multi-millionaire CEOs had to go down to the local welfare office to collect their tax breaks, they would think twice before they tell the elderly in Pennsylvania to "go eat cake."

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