This page covers the power of the health care industry to influence and define health care legislation and the hundreds of billions of costs shifted to citizens, employers, Medicare, and Medicaid.
Health Care Industry
Question:
Why does the U.S. pay so much more for pharmaceuticals and health care products and services?
Answer:
The health care lobby and an obedient congress.
Ozempic, the weight loss drug, costs about $900 per month in the U.S. (link), but only $124 a month in Denmark; home country of the manufacturer (link).
Even this is too expensive for the Danish government, which has requested doctors to move their patients from Ozempic to cheaper alternatives (link).
U.S. Health Care As A Market
The $4.9 trillion of U.S health care expenditures, represents the single largest and most profitable global market for health care products and services (link).
Companies within the U.S. health care market, spend hundreds of millions of dollars to lobby congress to sustain and increase their revenues, profits, competitive advantages, and market opportunities.
Health Care Lobbying
A JAMA (Journal of the American Medical Association) study reported that between the years 2000 and 2020, health care lobbying increased from $358.2 million to $713.6 million (inflation adjusted to 2020 dollars) (link).
In 2023, the following groups spent more than $747 million to lobby congress and the administration (link).
- Pharmaceuticals/Health Products -$382,593,389
- Hospitals/Nursing Homes – $132,720,088
- Health Services/HMOs – $128,665,468
- Health Professionals – $96,342,583
- Misc Health – $7,201,039
The Non-Interference Clause Of Medicare
Medicare part D was an element of the Medicare Modernization Act (MMA) of 2003 to assist Medicare beneficiaries in paying for prescription drugs. The MMA went into effect in 2006.
The MMA legislation prohibited Medicare and the federal government from using their enormous purchasing power to negotiate lower prices directly from the drug companies. This was known as the “non-interference clause.”
In 2003, pharmaceutical and health products companies spent about $481.9 million on lobbying (inflation adjusted to 2024 dollars (link), of which most was likely devoted to securing the non-interference clause in the Medicare legislation.
The Cost Of The Non-Interference Clause
A 2008 study (link) stated, if the federal government would have negotiated pharmaceutical prices for seniors, the annual cost savings would be $21.9 billion per year. This represents about $500 billion since Medicare part D was implemented in 2006 (inflation adjusted dollars).
- For a $458 million lobbying investment, the pharmaceutical industry received $500 billion in additional revenues (a return of 109,170% on their investment).
- Key congressional staff and elected representatives, who shepherded the MMA legislation through congress, acquired high paying employment within the pharmaceutical industry and related associations.
- Medicare beneficiaries and all taxpayers are forced to pay for the $500 billion though higher drug costs, taxes, and depletion of the Medicare Trust Fund.
CBS 60 Minutes On The Non-Interference Clause
The 2007 CBS 60 Minutes program, “Under The Influence,” (link) is a must watch to understand why drug prices are much higher in the U.S. The program illustrates:
- The tactics used by the pharmaceutical industry and its advocates in congress to pass the non-interference clause.
- How congressional promoters of the legislation became employees of the pharmaceutical industry and associations, after the non-interference legislation was passed.
A Few Crumbs For Medicare And Beneficiaries
Under pressure from citizens, congress passed legislation that allows Medicare to “negotiate” prices on a limited number of pharmaceuticals.
The 2022 Inflation Reduction Act (IRA) (link) is a basket of legislation for programs in corporate tax, Medicare, energy, IRS, and others. Of the Act’s total 274 pages, 72 pages are devoted to Medicare and a few pages to other health care programs.
Under the IRA, Medicare is restricted in its ability to negotiate prices to a limited number of pharmaceuticals. The first of the negotiated prices will not take effect until 2026, four years after passage of the legislation.
The restrictions placed on the number of drugs subject to negotiation and the terms of the price negotiations, reflect the pharmaceutical industry’s ability to water down legislation to minimize its impact on their revenues and profits.
This KFF analysis provides a summary of the IRA for Medicare (link).
Unrepentant
After the IRA legislation (above) was passed, a number of pharmaceutical companies filed a lawsuit to prevent Medicare from negotiating pharmaceutical prices.
After decades of American citizens and Medicare paying excessive prices for pharmaceuticals than other nations, some pharmaceutical companies remain unrepentant.
The Harvard Law article provides details on the pharmaceutical companies lawsuit to stop Medicare from negotiating drug prices (link).
The National Solution for Pharmaceuticals
The IRA legislation only affects Medicare, leaving the remainder of the U.S. population on their own, relative to expensive pharmaceutical prices.
Congress had an opportunity to enable Medicare to act on behalf of all citizens, employers, and Medicare to:
- Negotiate pricing on all pharmaceuticals.
- Assure the U.S.’ maximum price for any pharmaceutical would the lowest price paid by any other nation.
But congress chose not to do so.
The Lobbyists Revolving Door
In politics, the “revolving door” refers to the cycling of employees between an industry, like the pharmaceutical industry, and congress, congressional staff, and government agencies, such as the FDA or Medicare, that have oversight or influence over that industry.
In 2023, there were 3,310 registered health care lobbyists:
- This represents 6 lobbyists for every senator and representative.
- Of the 3,310 lobbyists, 49.9% were former government employees of federal agencies or congress.
- For the last 20 years, former government employees represented about 50% of lobbyists for health care companies.