1115.org

Remember the drug industry’s secret deal with the Obama administration to support healthcare reform “by shaving $8 billion a year off the nation’s drug costs after the legislation takes effect”?

It’s funny how that seems to be working out.

First, a bit of background. When George Bush introduced Medicare Part D in 2006, drug companies didn’t just sit back and rub their hands in glee at the enormous increase this would mean for their profits. No sir, they went out and pro-actively magnified the enormous increase:

A Harvard health economist, Joseph P. Newhouse, said he found a … pattern of unusual price increases after Congress added drug benefits to Medicare a few years ago, giving tens of millions of older Americans federally subsidized drug insurance. Just as the program was taking effect in 2006, the drug industry raised prices by the widest margin in a half-dozen years.

“They try to maximize their profits,” Mr. Newhouse said.

So now that healthcare reform is in imminent danger of taking effect, and the drug industry will have to deliver on that promise to shave $8 billion a year off the nation’s drug costs, what do you think the drug companies are busy doing? Raising prices at the highest annual rate since 2004. Specifically, in a year when the Consumer Price Index has fallen by 1.3%, the drug industry has increased prices by about 9%:

Even as drug makers promise to support Washington’s health care overhaul by shaving $8 billion a year off the nation’s drug costs after the legislation takes effect, the industry has been raising its prices at the fastest rate in years.

In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That will add more than $10 billion to the nation’s drug bill, which is on track to exceed $300 billion this year. By at least one analysis, it is the highest annual rate of inflation for drug prices since 1992.

The drug trend is distinctly at odds with the direction of the Consumer Price Index, which has fallen by 1.3 percent in the last year.

Like the man said, they just hate it when their profits go down. So the best thing all round is to just push up prices by an unwarranted $10 billion before you shave them by $8 billion. It may not be the best thing for you and me, but it’s the best thing for everyone who really counts (or who’s taken into account)—the drug companies, their army of lobbyists (whose families depend on the continued excess profitability of the drug companies), the long line of Congressmen and Senators with hands held out in classic “brother, can you spare a dime” fashion, and every Congressional aide and administration official who’s looking forward to boarding the drug industry gravy train in the near future.

Looks like the Obama administration has been royally taken. Given the past behavior of this industry — amply documented by widely available research — wasn’t it a monumentally stupid idea to make the kind of deal they did? With no control over what the base line would be from where the drug industry would start their $8 billion shaving.