More Evidence that Providers Drive Healthcare Costs

 of Benefits Pro reports this AP news story that adds more evidence to my conclusions that Providers and Suppliers, not Insurers, are the drivers of U.S. health care costs.

House Republicans are releasing emails and documents that shed light on dealings between the White House and the drug industry as President Obama worked to move the health care overhaul through Congress during the the summer of 2009.  Republican members of the House Energy and Commerce Committee obtained emails from industry to ascertain some interesting facts.

Interesting revelations about how the influence of the drug industry on the legislation:

  • An $80-billion financial commitment by the drug companies gave the bill some momentum.
  • The deal included better prescription coverage Medicare recipients.
  • Drug makers succeeded in avoiding new requirements to pay rebates to the government for Medicare drugs.
  • They were able to preserve an existing ban against patients importing lower-priced medications from overseas.

Memo from the Energy and Commerce Committee Republican Members

This is based on an executive summary obtained by BenefitsPro:

  • The White House negotiated a deal with the Pharmaceutical Research and Manufacturers of America (PhRMA) in mid-June 2009.
  • After attempting to secure a commitment from the industry for $100 billion in payment cuts, eventually the White House settled for approximately $80 billion in payment reductions through expanded and increased Medicaid rebates and a new health reform fee. PhRMA also had direct input into the actual legislative policies that produced the $80 billion, including the proposal for closing the Part D doughnut hole.
  • Under the deal, “the White House and Senator Baucus agreed” that neither price controls nor a government-run Medicare Part D plan would become law, the White House would oppose price controls on dual eligible beneficiaries, and that savings from a follow-on biologics proposal would be applied to the total $80 billion commitment.
  • White House Office of Health Reform Director Nancy-Ann DeParle told PhRMA’s chief lobbyist for negotiating the deal that the White House would oppose new drug importation policies because of “how constructive” PhRMA had been. According to PhRMA’s lobbyist, White House Deputy Chief of Staff Jim Messina told him that the “WH is working on some very explicit language on importation to kill it in health reform.”
  • Despite countless promises of televised negotiations and transparent government, the White House met in private with PhRMA representatives and drug company CEOs in July 2009, “to look the other side in the eye and shake their hand on whatever deal we work out.”
  • The White House was not above threatening PhRMA to get its way. According to PhRMA’s chief lobbyist, the White House was going to have President Obama call for rebating all of Medicare Part D, a policy PhRMA staunchly opposed, in his Weekly Radio Address unless PhRMA cut a deal with the White House to support health reform.

Beyond the Partisan Hype – Some Conclusions

While it’s clear that the hyper partisan environment looking to dig up dirt is driving this kind investigation, the information has no smoking gun for the Administration. But it should be an eye-opening look into the incredible clout that Providers have in health care today.
  • Big Pharma exerts power – over every level of government.
  • It isn’t partisan – Big Pharma works both sides of the aisle.
  • Lowering health care costs is impossible – until Americans see the reality of Big Pharma and the Hospital Groups’ role in controlling costs.

Obscene Profit Margins

To put the issue squarely in perspective, profit margins for the major pharmaceutical companies are typically in double digits, with several are over +20%. These margins contrast sharply with most other areas of consumer goods and services, where margins are in the 0-5% range – assuming they’re profitable.

Profit margin data as of 2009

Consumer Goods & Services:
  1. Walmart         +3.47%.
  2. Best Buy          +2.0%
  3. Home Depot  +3.5%
  4. Lowes               +5.87%
  5. Target              +5.2%
  6. The Gap           +6.65%
  7. CVS                   +3.72%
  8. JC Penny         +1.46%
  9. Staples             +2.84%
  10. Starbucks       +4.00%
  11. Unilever           +9.8%
  12. Sears                  0.00%
  13. Yahoo                -1.41%
  14. Office Max       -5.57%
  15. Office Depot   -14.95%
  16. Time Warner  -43%

Big Pharma margins, by size of net revenue:

  1. Johnson & Johnson  +21%
  2. Pfizer                               +17.7%
  3. Novartis                          +18%
  4. Astra Zeneca                 +22.6%
  5. Abbott                              +18.7%
  6. GlaxoSmithKline        +18.5%
  7. BristolMyersSquibb  +23.5%
  8. Lilly, Eli                           -1.0%
  9. Amgen                             +31.8%

(Ortho-McNeil-Janssen and Schering Plow are not publicly traded.)

Despite the recession, Big Pharma continues to rake in huge profits due to factors, including:

  1. Massive subsidization of their sales by government purchases at federal, state, and local levels.
  2. Massive consolidation within the industry. For example, Pfizer alone swallowed up Parke-Davis, Pharmacia, Upjohn, Wyeth, & Searle. Novartis swallowed up CIBA and Sandoz.
  3. The fraudulent extension of patent exclusivity by Big Pharma by numerous means. Pharm companies always apply for patent extensions, which are almost always granted
  4. Intra-company agreements to not sell generics–even after patents have expired. In other cases, another company will buy the drug once the patent has expired, and re-patent it, thus again preventing the generic from entering the market.

Snap! principle of health care cost drivers:

It’s the Providers and Suppliers, not the insurers, stupid!