Personal Health

Bush's Prescription for Plutocracy

Is Washington hopelessly gridlocked? Not when the rich and powerful need help.
Imagine yourself the CEO in an industry that has been registering record profits year after year -- mainly by overcharging consumers for products they feel they literally can't live without. But suddenly you find yourself with a problem: Your products have simply become too costly for consumers to afford.

So what do you do? You convince lawmakers to plow billions of taxpayer dollars into a program that will help consumers pay for your overpriced products. Problem solved. You can now, as a certified CEO genius, look forward to years of windfall rewards.

This scenario sound far-fetched? You haven't been paying attention. This scenario has actually just unfolded -- in the pharmaceutical industry.

Big Pharma, as the industry has become less than affectionately known, entered the 21st century the most profitable industry in the world. In 2002, notes Harvard Medical School analyst Marcia Angell, the top 10 drug companies in the United States netted more earnings than all the rest of the companies in the Fortune 500 taken together.

Big profits like these translated into hefty paydays for top Big Pharma executives. In 2001, the five most lavishly compensated drug company execs averaged over $30 million each. Three Big Pharma execs entered that year with at least $131 million worth of stock options they hadn't yet cashed in.

The fuel for these big earnings: revenues from outpatient prescriptions that were rising at a remarkable 15 percent annual rate. By 2002, 12 cents out of every dollar Americans were expending for health care were going for prescription drugs.

But no industry can sustain, over the long haul, such annual revenue increases. For Big Pharma, the first big sign of trouble would come in 2003. In that year, after over two decades as Corporate America's most profitable sector, the pharmaceutical industry lost its number one profitability ranking, dropping to third place.

The industry would waste no time crying in its chemicals. In that same 2003, Big Pharma would team with the Bush White House to push through Congress legislation that added a prescription drug benefit to the Medicare program.

Seniors, the White House crowed, would finally have help paying for their prescriptions.

This new Medicare legislation guaranteed all seniors eligibility for some form of drug benefit by January 2006. But the legislation didn't guarantee any decrease in prescription drug prices.

Indeed, the new law specifically prohibited any federal government action to negotiate for lower prices directly with the drug companies.

"The key goal," notes Ron Pollack of the health care watchdog group Families USA, "was to make sure there'd be no interference in the drug companies' abilities to charge high prices and to continue to increase those prices."

To safeguard this price-inflating provision, Big Pharma would spend the next three years overrunning Capitol Hill with lobbyists and cash. Through 2005 and the first six months of 2006 alone, the Center for Public Integrity reported last April, drug companies and their trade groups spent $155 million on lobbying Congress.

Those dollars, the Center notes, unleashed an army of 1,100 paid lobbyists on the House and the Senate -- over two lobbyists, in effect, for every Capitol Hill lawmaker.

On top of that, Big Pharma invested millions more in campaign contributions, over $70 million in all from 1998 through June 2006 -- and spent even more millions ushering members of Congress into America's economic elite.

In 2005, for instance, the industry's top trade association — the Pharmaceutical Research and Manufacturers of America — named former Congressman Billy Tauzin its new CEO. His pay package: a reported $2 million, over 15 times his take-home as a lawmaker.

These Big Pharma investments all paid off. Attempts to amend the 2003 drug "benefit" legislation went nowhere. The legislation went into full effect exactly as the drug industry wanted.

The results would be predictable. In 2006, overall outlays for prescription drugs "accelerated for the first time in six years," soaring 8.5 percent.

An analysis of that increase, published last week by the U.S. Centers for Medicare and Medicaid Services, hands all the credit to the new federal Medicare benefit.

In 2006, $41 billion taxpayer dollars went toward underwriting the drug benefit. Over the course of the year, the share of the nation's total prescription drug costs paid by Medicare leaped from 2 percent to 18 percent.

In other words, an unalloyed victory for the drug companies. They can now continue to overcharge with impunity. America's taxpayers have come to their rescue.

The drug companies, not surprisingly, aren't exactly sharing their new-found good fortune. In 2007, Fortune reported this past December, Big Pharma deep-sixed over 30,000 jobs. The companies are busily outsourcing, big-time, to China and India.

Drug company executives, on the other hand, continue to prosper. Wyeth CEO Bob Essner, for one, pulled in over $32 million in 2006.

Other industry execs have fared even better. Pfizer CEO Hank McKinnell exited his executive suite with a $200 million golden parachute in 2006. Another Pfizer executive, executive VP Karen Katen, walked off with a $78 million "consolation prize" after she lost out in a bid to become McKinnell's successor.

Last Monday, a day before the official release of the first Medicare benefit analysis, a bipartisan band of nationally prominent former lawmakers -- mostly former U.S. senators along the lines of Sam Nunn and David Boren -- gathered at a conference in Oklahoma to lament gridlock in Washington, D.C.

The nation's two parties, this illustrious group avowed, have lost the capacity to solve problems.

Hogwash. Lawmakers in Washington, as the Medicare prescription drug benefit story demonstrates so clearly, solve problems all the time. Rich people's problems.

In a plutocracy, that's simply what lawmakers do.

Sam Pizzigati is the editor of the online weekly Too Much, and an associate fellow at the Institute for Policy Studies.
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