Report Shows Medicare Means Massive Profits for Drug Companies

BRADENTON – A new report shows that the 11 largest drug companies took $711.4 billion in profits over the last 10 years. In American markets, where prices are inflated to much higher levels than in other countries, they climbed more than 60 percent since 2003, largely from favorable terms with payments from Medicare.

The report was the result of an analysis of corporate filings by Health Care for America Now (HCAN). The group claims that the global pharmaceutical industry derived much of that profit from "price-gouging" the Medicare Part D prescription drug program for seniors and people with disabilities.

“The drug industry’s profits are excessive as a result of overcharging American consumers and taxpayers,” said Ethan Rome, HCAN’s executive director. “During this period, as millions of Americans struggled to afford their medicines, Republicans in Congress have threatened to cut seniors’ benefits while refusing to consider commonsense measures to get a better deal from drug companies.”

In the analysis, HCAN reviewed the last decade’s financial filings from 11 prescription drug giants: Pfizer, Johnson & Johnson, Novartis, Merck, Roche, Sanofi-Aventis, GlaxoSmithKline, Abbott Laboratories, AstraZeneca, Eli Lilly and Bristol-Myers Squibb.

With the help of its prescription-drug marketing machine, the industry's already enormous profits surged to new levels in 2006, the first year of Medicare’s Part D prescription drug program. The 11 drug companies in the analysis booked $76.3 billion in profits that year – a 34 percent increase from the previous 12 months.

Medicare is the largest purchaser in the world’s largest drug market. It is prohibited by law from negotiating better prices. Using information released by Congressional Budget Office, HCAN says that simply empowering Medicare to get the same bulk purchasing discounts that state Medicaid programs receive would save the federal government $137 billion over 10 years.

“Eliminating price-gouging on that scale would go a long way toward addressing the fiscal challenges that are under constant discussion in Washington – without harming seniors and middle-class families,” Rome said. “When it comes to addressing our country’s fiscal challenges, we shouldn’t even talk about cutting Medicare or any services people depend on, as the Republicans have proposed. Our politicians give all kinds of tax breaks and subsidies to big corporations that don’t need them, and no industry illustrates that better than Big Pharma.”

Pharmaceutical companies charge customers in the U.S. much more for the same drugs than they do in places like Canada and Europe, where government health plans bargain with the drug manufacturers. HCAN claims that per capita drug spending in the U.S. is about 40 percent higher than in Canada, 75 percent greater than in Japan and nearly triple the amount spent in Denmark. 

The companies often refute the steep price differences by saying that the U.S. revenues fund important research and development. HCAN counters that half of the scientifically innovative drugs approved in the U.S. from 1998 to 2007 resulted from research at universities and biotech firms, not big drug companies, while pointing out that the corporations spend about 19 times more on marketing than on R&D.

“Every gift to a special interest, such as allowing Big Pharma to overcharge Medicare, is wasteful spending of scarce tax dollars,” Rome said. “Instead of cutting benefits to seniors and families, we should eliminate indefensible special-interest tax breaks and subsidies for big corporations that don’t need them.”