President Clinton's proposal to strengthen Medicare and create a much-needed prescription drug benefit has given Congress the basis for action. But while Congress considers his proposal, it can do something right now about drug prices paid by the elderly.
Older Americans pay the highest prescription drug prices in the world. As a result, all across the nation, senior citizens aren't taking the prescription drugs their physicians say they must. In an attempt to remedy this situation, we have introduced the Prescription Drug Fairness for Seniors Act (H.R. 664/S. 731) to put the buying power of the federal government behind Medicare beneficiaries and save them an average of 40 percent on the prices they pay.
Congress did not include an outpatient drug benefit when Medicare was created 35 years ago. Back then, pharmaceuticals played a much smaller role in health care and were not a significant cost to consumers. Today the elderly, who are 12 percent of our population, purchase one-third of all prescription drugs. Yet over one-third of all Medicare beneficiaries (15.5 million people) have no prescription drug insurance coverage, and millions more either lack sufficient coverage or must make expensive co-payments.
So some seniors don't follow their doctors' orders. They don't fill one or more of their prescriptions. If their prescription calls for several pills a day, some take only one or two. Some elderly people don't buy their own prescription medication so that they can afford medications for a spouse.
The limited prescription drug coverage offered by some Medigap plans is too costly for most seniors. Many of the Medicare managed care plans that covered some prescription drugs have reduced or eliminated these benefits. Medicaid is available only to the very poor.
Sadly, as prescription drugs have become an increasingly important part of health care, pharmaceutical industry pricing practices have become increasingly discriminatory toward uninsured seniors. Over the past year, under the leadership of Rep. Henry Waxman, Democratic staff of the House Government Reform Committee have examined prescription prices charged to senior citizens in more than 50 congressional districts. The resulting studies confirmed a clear pattern of price discrimination by the pharmaceutical industry.
Older Americans pay, on average, almost twice as much as the drug companies' favored customers -- such as large insurance companies and HMOs -- for the medications most frequently prescribed for seniors. An international cost survey of the same medications found that American seniors pay 72 percent more than consumers in Canada and 102 percent more than consumers in Mexico.
The Prescription Drug Fairness for Seniors Act would use the free market to give Medicare beneficiaries the same advantages enjoyed by large HMOs and other bulk purchasers such as the federal government. The bill creates no new bureaucracy and involves only minimal costs to the federal government. Medicare and Medicaid would likely save money from seniors whose health worsens and whose medical bills increase because they can't afford their medications.
Our legislation does not impose price controls on the pharmaceutical industry. It ends price discrimination against older Americans. Companies could continue to set their best price at whatever level they want and the market will bear. But in the existing market, large purchasers obtain discounts for their beneficiaries by purchasing in bulk. Such is the case with large HMOs and many hospitals. Virtually all federal health care programs get substantial discounts. Our legislation would simply use the market power of the federal government on behalf of the nation's 40 million Medicare beneficiaries.
Opponents claim that our bill doesn't guarantee that pharmacies would pass savings on to the elderly. But our studies have demonstrated that pharmaceutical companies, not retail pharmacies, are responsible for nearly 80 percent of the difference between retail prices and those the drug companies' most favored customers pay. Furthermore, the pharmacy market is highly competitive, and seniors shop at the pharmacies offering the best prices.
Drug manufacturers earn more in profits ($26.2 billion in 1998) than they spend on research ($24 billion). Fortune magazine rates pharmaceuticals as the nation's most profitable industry: No. 1 in return on revenues (18.5 percent), assets (16.6 percent) and equity (39.4 percent). The profits of other industries that rely heavily on research pale in comparison: telecommunications, 11.5 percent; computer and data services, 5 percent; and electronics, 3.6 percent.
We agree with President Clinton that older Americans should not have to choose between buying medicine and food, between paying their electric bills and their drug store charge accounts, between purchasing the drugs their doctors prescribe and living in pain and anxiety. The president has said that we need "a drug benefit our seniors can afford at a price America can afford."
The Prescription Drug Fairness for Seniors Act can make prescription drugs much more affordable for older Americans and the price of a prescription drug benefit under Medicare more affordable for America.
Tim Johnson is a Democratic senator from South Dakota. Tom Allen is a Democratic representative from Maine.