Prescription Drug Reform

Summary || Background || Problem || Links

Summary:

Widespread frustration about the high costs of prescription drugs have led to the introduction of a number of Federal bills proposing to provide some type of prescription drug benefit. Many proposals expand Medicare to include prescription drug benefits, one proposal gives states block grants and provides for tax reimbursements and other legislation links the costs of drugs bought through Medicare to the Federal Supply schedule. The Federal Supply Schedule is used by federal agencies that directly buy prescription drugs. All of the pending legislation applies only to senior citizens who bear the biggest brunt of the high costs of prescription drugs. PIRG believes that any solution should make prescription drugs affordable for all consumers.

Background:

The PIRGs have supported a number of health care reforms. The PIRGs support generic drug legislation, physician oversight legislation and has protected a consumers’ right to sue for medical malpractice. We have been involved in managed care reform since 1993 when U.S. PIRG supported single payer reform but not President Clinton’s alternative managed care reform plan. We are currently advocating for a strong Patients' Bill of Rights.

In addition to consumers’ mounting discontent with the quality of care and cost of care provided by HMOs, consumers are increasingly voicing their frustration and anger about the high costs of prescription drugs. Some state PIRGs are already involved in campaigns to bring down the cost of prescription drugs by prohibiting price-gouging practices by drug companies. For example, MASSPIRG has already taken a leading role in advocating for fairer drug prices in Massachusetts through support of a mandatory statewide buying cooperative. The cooperative would effectively allow the state to act as a large buyer of prescription drugs by using Massachusetts’ $2.5 billion dollars worth of combined buying power. The discounts would then be passed on to the state's consumers via traditional purchasing at pharmacies.

VPIRG supports a proposal that would link the price of drugs being sold in Vermont to the price being sold in Canada or the Federal Supply Schedule, whichever is lower. Either of these pricing plans would result in considerable discounts for consumers. MASSPIRG and VPIRG have also conducted drug price surveys to compare the costs of generic and prescription drugs across the state, which highlight the high costs and cost discrepancies that permeate the prescription drug market. In addition, several state PIRGs have successfully lobbied for the passage of a generic drug law that enables more generic-lower cost drugs to be available to consumers sooner, while continually fighting back legislative attempts by the drug industry to roll back and weaken the law.

NYPIRG has been active in a wide variety of health care initiatives as well.

Problem:

Drug companies are gouging consumers by charging American consumers the highest prices in the world. Large buyers of prescription drugs, HMOs, hospitals, and the federal government use their buying power as leverage to negotiate lower prices. However, people who pay for their own prescription drugs, the 70 million Americans with no or inadequate prescription drug coverage, are still paying too much. The cost of prescription drugs is particularly important for older Americans because they have more medical problems, and take more prescription drugs, than the average American. The situation is exacerbated by the fact that the Medicare program, the main source of health coverage for the elderly, fails to cover the costs of most prescription drugs. Medicare beneficiaries can purchase supplemental insurance privately, but these policies are often prohibitively expensive or inadequate. Senior citizens covered by Medicare are spending an average of 17% of their incomes on prescription drugs.

Drug industry pricing strategies have boosted the industry's profits to extraordinary levels. The annual combined profits of the top ten drug companies are over $25 billion. Overall, profits for the major drug manufacturers grew by over 21% in 1998 and their profits were expected to grow an additional 25% in 1999. In 1999 the price of drugs rose 4.2 times faster than the rate of inflation. In addition, drug prices in the United States are the highest in the world. American consumers pay 72% more than consumers in Canada and 102% more than consumers in Mexico. In 1998, the 24 pharmaceutical companies that produced the 50 top-selling prescription drugs purchased by older Americans made a median net profit of 20%. This is 4.5 times the 4.4% median profit for all Fortune 500 Companies.

On January 17, 2000 drug prices drew more national attention when a group of New Hampshire senior citizens embarked on a bus trip to Canada, where the cost of their drugs is significantly less than in the United States. The goal of the trip, sponsored by Public Citizen (www.citizen.org), the New Hampshire Citizens Alliance for Action, the New Hampshire Association for the Elderly, and the National Committee to Preserve Social Security and Medicare (www.ncpssm.org), was to challenge the presidential candidates to support legislation establishing a comprehensive Medicare drug benefit and a program for negotiating drug price reductions on behalf of Medicare’s beneficiaries.

PIRG supports legislation that allows consumers to pool their buying power to purchase drugs at the same price that the government and other large purchasers are charged or at the price linked to an average of the costs of drugs in specific countries. The bill that comes closest to PIRG’s policy recommendation is H.R. 664/S. 731- The Prescription Drug Fairness for Seniors Act —Allen/Kennedy. This bill applies to all Medicare beneficiaries who will be able to buy prescription drug benefits at costs linked to the Federal Supply Schedule. Pharmacies would be able to purchase prescription drugs for Medicare beneficiaries at the same prices paid by the federal government and other large purchasers such as large HMOs. This bill relies on market forces to lower the costs of drugs for older Americans. This legislation will allow pharmacies to use the existing pharmaceutical distribution system and will not create a new federal board of overseers. This is the leading bill in Congress and would substantially reduce the price of drugs for Medicare recipients to about the level in Canada. However, this bill falls short of lowering the costs of drugs for all consumers. Therefore, we should urge members of Congress to support a broader bill that would end price gouging against all consumers, not just seniors.

Links:

Press Releases, Reports and Letters to Congress