Seniors Beware, Results from the Prescription Drug Task Force

RISING PRESCRIPTION DRUG PRICES AND ERODING COVERAGE ARE SQUEEZING SENIORS' INCOME...

When it comes to needed prescription medicines, seniors in America are increasingly under siege. Even as employers are scaling back or dropping retiree health coverage, premiums for supplemental "Medigap" policies with drug coverage have reached unaffordable levels in many markets, and soaring drug budgets are forcing Medicare managed care plans to pull back on prescription drug benefits.

From 1981 to 1999, prescription drug prices increased by 306% while the Consumer Price Index rose only 99%, according to the Bureau of Labor Statistics. In the last year alone, drug spending rose by 18.4% -- driven by a combination of both price inflation and increased utilization.

These rising prices are putting the squeeze on Medicare beneficiaries who have no prescription drug insurance -more than 15 million, and rising. Medicare's basic benefits package doesn't include outpatient prescription drugs, leaving older Americans with modest, fixed incomes who have chronic health conditions to struggle daily with this questions: should I fill the prescription my doctor ordered, or buy other necessities?

This dilemma is worsened by a phenomenon known as price discrimination, or the practice of setting different prices for consumers in different markets. The pharmaceutical industry's pricing practices leave seniors holding the short end of the stick. Analyses prepared by House Government Reform Committee's Democratic staff in more than 90 Congressional districts have found in each case older Americans with no drug coverage pay almost twice as much as enrollees in large group health plans for some of the most commonly prescribed medications. A separate series of Government Reform studies concluded that drugs sold in Canada and Mexico are generally half the price of the same drugs sold to U.S. consumers.

These trends -- eroding coverage and rising prices -- are making it increasingly difficult for seniors to purchase the medications they need to control chronic conditions. An estimated 16% of Medicare beneficiaries are enrolled in Medicare HMOs today, and 70% of those plans offer drug coverage. But it is not guaranteed -- and during the last two years, Medicare managed care plans have withdrawn from many regions -- stranding tens of thousands of seniors many of whom only signed up to get pharmaceutical coverage in the first place. Moreover, 21% of Medicare HMOs are limiting drug coverage to $500 or less per year. By next year, 32% of Medicare managed care plans are expected to have such limits. This suggests that absent fundamental change, more and more seniors who can't afford the drugs they need will wind up in hospitals and nursing homes.

Twelve Fortune 500 pharmaceutical companies earned more in profits ($26.2 billion in 1998) than the entire industry spent on research ($21 billion). Fortune magazine rates pharmaceutical manufacturers as the most profitable businesses in America: number one 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.

LEADING MEMBERS OF CONGRESS AND THE ADMINISTRATION PROPOSE PLANS FOR AFFORDABLE MEDICARE DRUG COVERAGE...

This year, several members of Congress and President Clinton introduced comprehensive plans to add an outpatient drug benefit to Medicare. Others are backing legislation that would ensure fairer prescription drug prices. The pharmaceutical industry's response has been to mount a campaign designed to minimize the chances of enacting any proposal that would result in universal access to affordable prescription drugs for the nation's seniors.

Drug makers say they oppose proposals introduced to date because they will harm pharmaceutical research and development efforts. But legislative history suggests that this assertion is untrue. For example, following enactment of the Hatch-Waxman Act in 1984 -which lengthened patents for certain brand-name drugs while making changes in patent laws that allow generic drug companies to get products to market sooner -- pharmaceutical R&D accelerated. And since 1990, R&D expenditures have grown from $8.4 billion per year to $21 billion last year.

PhRMA IS TRYING TO DEFEAT MEANINGFUL PROPOSALS WITH A SILLY, SLEAZY MULTI-MILLION DOLLAR AD CAMPAIGN AND ANALYSES DESIGNED TO SCARE AND MISLEAD SENIORS...

The Pharmaceutical Research and Manufacturers of America (PhRMA) and other special interest groups can delay -but not defeat -- the needs of millions of seniors for Medicare drug coverage by creating fake groups such as "Citizens for Better Medicare" and "Alliance to Improve Medicare." A quick look at the membership and financing of these groups shows that they serve industry -- not consumer -- interests. And as PhRMA's "Flo" ads continue to fade from the public's memory, it is becoming clear that real seniors in real cities and towns across the country don't care what the fictional character Flo thinks. What they want is assurance that the federal government will help provide the means to fill their medicine cabinet with lifesaving medications.

Like HMO reform, Congress will be talking about universal Medicare drug coverage until the day it becomes law. The reason for this is simple: public pressure for affordable drug insurance is being fueled by the aging of our population and its growing health needs -- at the very point scientific research is beginning to provide remedies and cures for diseases that until recently were thought to be unbeatable.

After Medicaid, the Veterans Administration, the managed care plans and big insurers, hospitals, and other parties with some bargaining power win their discounts, manufacturers raise prices for the people without bargaining power-people without insurance and therefore without anyone to negotiate for them. It is particularly unjust that our poorest patients-and many of our sickest patients-are burdened with the world's highest prices. 1

People age 65 and older are 12% of the U.S. population, but they consume almost 35% of all prescription drugs. Excluding insurance premiums, drugs account for 34% of seniors total healthcare bill, more than doctor visits (3 1%) and hospital admissions (14%). 3

From 1981 to 1999, prescription drug prices increased by 306% while the Consumer Price Index rose only 99%. 4

Studies comparing drug prices charged to uninsured seniors versus drug prices charged to most favored customers such as the federal government or big HMOs prepared by the House Government Reform staff for over 90 congressional districts have consistently demonstrated price discrimination on the part of drug manufacturers. Uninsured seniors often pay twice as much for their prescription drugs than most favored customers.

Spending on outpatient pharmaceuticals in 1999 is estimated to average $942 per senior citizen. 5

Spending for prescription drugs rose 14. 1 % in 1997, compared to a 4.8% increase for health services overall. 6

Spending is higher for women. Because of their greater likelihood of living longer and having chronic illness, women on Medicare spend nearly 20 percent more on prescription drugs than men. 7

Americans who pay for all or part of their prescriptions out of pocket are charged far more than either insurance companies or HMOs. 8

In 1996, a federal judge approved a settlement between some of the drug companies and retail pharmacies that included a $350 million cash settlement and an agreement by these companies to refrain from setting discriminatory prices against retail pharmacies that demonstrate the same ability as HMOs to alter prescription drug market shares. 9

Unlike most major insurers, Medicare does not generally cover the costs of outpatient prescription drugs. Because of this gap, Medicare beneficiaries must either pay out-of pocket or rely on other sources to assist in purchasing medicines. Yet supplemental sources of prescription drug coverage for millions of seniors are inadequate, unaffordable -- or both. As a result, more than one-third of Medicare beneficiaries have no coverage for outpatient prescription drugs.

Most other beneficiaries rely on drug coverage provided through Medigap plans (8%), employer-sponsored insurance (24%) and some HMOs that offer prescription drugs as an incentive to attract enrollees (17%). But the cost of prescription drug coverage under Medigap is out of reach for many seniors living on modest, fixed incomes. And, as drug prices continue to skyrocket and the number of new, effective medicines increase, Medicare HMOs and private employer sponsored insurance plans have begun -- and are expected to continue -- cutting back or eliminating their prescription drug benefits.

Three of the standardized Medigap plans offer prescription drug coverage (Plans H, I and J). All three plans impose a $250 deductible. Plans H and I cover 50% of the charges up to a maximum benefit of $1,250. Plan J covers 50% of the charges up to a maximum benefit of $3,000. According to a recent analysis, 28.4% of Medicare beneficiaries were enrolled in Medigap plans in 1996.10 But only approximately 12% of seniors have limited drug coverage under a Medigap plan.

The premiums for Medigap plans providing drug coverage are higher than those for the other seven Medigap plans mostly due to the drug coverage component. Adverse selection tends to drive up the per capita cost of coverage under these three Medigap plans as only those persons who expect to actually utilize a significant quantity of prescriptions purchase drug coverage. 11

In September 1998, Consumer Reports evaluated Medigap plans, focusing on two plans (C & 1) that are virtually identical, except that plan I provides a $1,250 prescription drug benefit. The analysis showed that a 75 year-old senior would typically pay a premium of $1,437 for Plan C and $3,284 for Plan I. That means that seniors are today paying $1,847 for a prescription drug benefit of $1,250--or $597 more in premiums than the actual value of the prescription drug benefit.

Medicare HMOs are projected to reduce prescription drug benefits substantially in the future. Already, nearly three-fifths of plans say they will cap prescription drug benefits at $1,000 next year, while the proportion of plans with a $500 (or lower) benefit cap will increase by over 50%. Other plans have said they will begin charging monthly premiums, or increasing existing premiums that seniors pay to receive a drug benefit.

The announcement in July 1999 of the withdrawal of HMOs from the Medicare program - dropping almost 400,000 beneficiaries -- means that these seniors will lose their drug coverage and be forced to purchase supplemental drug insurance or pay out-of-pocket for their medications.

A recent Kaiser Family Foundation survey of Medicare HMOs warned that the rapid increases in prescription drug costs coupled with reductions in the growth of Medicare payments to plans "jeopardize the availability of relatively generous affordable drug coverage under Medicare HMOs in the future. " 12

Employers may offer their retirees health benefits. However, the number of employers offering coverage has declined in recent years. A 1997 survey of retiree health plans found that over a 5-year period (1993-1997) the number of employers providing health insurance to Medicare-eligible retirees fell from 40% to 3 1 %. Over the same time period, coverage by large employers (over 5,000 employees) of Medicare-eligible retirees dropped from 63% to 48%. Such diminishing employer-sponsored coverage is another reason for Medicare beneficiaries' reduced access to drug coverage. 13

The scope of benefits offered to retirees varies by plan. Of those employers offering retiree medical coverage for Medicare-eligible enrollees in 1997, two-thirds provided some drug coverage. The percentage increases to approximately 90% for large employers, while two-fifths of employers offered a mail-order plan.

The Employee Benefit Research Institute theorizes that prescription drug benefit plans offered by employers are likely to undergo changes to ensure that only the most efficacious drugs are covered - e.g., increased copayments, inclusion of drug costs in health plan capitated payments to physicians, and more aggressive use of formularies. 14

A 1991 General Accounting Office report found that prescription drugs in the U.S. were priced 34% higher than the same products in Canada. Of the 121 prescription drugs surveyed, 99 had higher prices in the United States than in Canada (in 21 cases, the price differentials exceeded 100%; in 8 cases, the price differentials exceeded 200%).

A similar report by GAO in 1994 comparing the prices for prescription drugs in the UK and the US determined that 66 of the 77 drugs surveyed were priced higher in the United States. For 47 of these drugs the price differentials exceeded 100%. Twelve of the drugs evaluated had a markup of more than 500%. Furthermore, four of the five most commonly dispensed drugs in the United States cost anywhere from 58%-278% more in the U.S. than in the United Kingdom:

A 1991 Senate Aging Committee report concluded that if Medicaid had access to prices that the pharmaceutical industry makes available in Canada (and other countries) state Medicaid agencies and American taxpayers would pay an estimated $474 million less per year for brand-name drugs in the Medicaid program alone. 15

How Much Citizens of Other Countries Pay for every $1.00 an American Spends for Prescription Drugs:

An analysis of eight industrialized nations highlights the disturbing fact that the U.S. is the only country lacking government-sponsored prescription drug coverage for its senior citizens.

Canada, the United Kingdom, Germany, Japan, France, Sweden and the Netherlands all provide universal prescription drug coverage for the elderly. The UK and France fully exempt the elderly from copayments for certain prescription drugs. Sweden charges seniors a $10 copayment for prescription drugs, and caps annual out-of-pocket expenses at $200.

The chart on the following page clearly illustrates our government's failure to provide pharmaceutical coverage for seniors who need it most.

Revisions to FDA policies in 1985 and 1997 have resulted in unprecedented increases in marketing directly to consumers. Spending on DTC advertising increased more than 20-fold from $55.3 million in 1991 to over $1.3 billion in 1998. 16

In 1998, pharmaceutical manufacturers spent $8.3 billion, all of which is tax deductible, promoting their products in the United States. About $1.3 billion was spent on direct-to consumer (DTC) advertising and $7.0 billion on advertising and detailing to health care professionals. 17

The Pharmaceutical Research and Manufacturers of America (PhRMA) projects 1999 R&D spending to grow by 17 percent from 1998, while spending on DTC advertising is expected to grow 54 percent over 1998 levels. 18

More than one-third (35.2 percent) of the entire 1993-98 increase in drug spending was attributable to just five categories of drugs: antidepressants, cholesterol reducers, antiulcerants, oral antihistamines, and antihypertension drugs. The top four categories include seven of the ten drugs with the greatest spending on direct-to-consumer (DTC) advertising in 1998. 19

The 10 most heavily promoted drugs in 1998 (measured by DTC advertising outlays) accounted for over a fifth (about 22 percent) of the total growth in prescription drug expenditures between 1993 and 1998. 20

Pharmaceutical research was only 0.97% of U.S. health spending in 1990 - 1994, compared to an average of 1.53% for the U.K., Japan, France, Italy, Germany and Canada. 21

Twelve Fortune 500 pharmaceutical companies made more in profits ($26.2 billion in 1998) than the entire pharmaceutical industry spent on R&D ($21 billion in 1998). 22 Fortune magazine rates pharmaceuticals as the nation's most profitable industry: number one in return on revenues (18.5%), assets (16.6%), and equity (39.4%). The return on revenues of other industries that rely heavily on research pale in comparison: telecommunications, 11.5%; computer and data services, 5%; and electronics, 3.6%. 23

Drug makers and the Pharmaceutical Research and Manufacturers of America (PhRMA) argue that if Americans do not pay high prices to "bear the world's research burden," many new drugs will not be developed. However experts say:

Lower U.S. pharmaceutical prices need not mean lower revenue and profit for drug makers if they cut costs, boost volume, or raise prices in other wealthy nations.

Drug makers all face the same pricing policies worldwide. A more plausible engine of U.S. pharmaceutical innovation is public funding for biomedical research through NIH. 24

The brand name pharmaceutical industry said that increasing the availability of generic drugs, part of the 1984 Waxman-Hatch Act, threatened R&D. But over the five year period following passage of the legislation, pharmaceutical companies more than doubled their investment in research and development, from $4.1 billion to $8.4 billion. 25

In 1990, PhRMA opposed legislation enacted into law to reduce Medicaid drug prices because "[i]ncentives for pharmaceutical research will be reduced." 26 But between 1990 and 1997, pharmaceutical companies again more than tripled their spending on research and development, from $8.4 billion in 1990 to $24 billion in 1998.

Drug company profits are derived principally from the patents they hold. Enacting policies which ensure fair prescription drug prices will cease drug companies profiteering from charging excessively high prices, and increase their incentive to increase revenues by working to bring newer and better products to market.

Pharmaceutical companies benefit more than any other industry from the R&D tax credi t. 28

In FY 99, public funding of biomedical research in U.S. - much of which research supports development of new drugs -- is much greater in the U.S. than in other countries.

Pharmaceutical and medical supply companies have given $2,172,520 in political soft money during the first half of 1999, more than double the $1,014,000 they gave during the first half of 1995. 29 This increased spending to influence public policy has occurred while Congress debates how to provide seniors with Medicare coverage for prescription drugs and the Federal Trade Commission (FTC) is investigating prescription drug prices and efforts by brand-name drug companies to stifle generic competition. For example, the FTC is examining the circumstances under which one brand-name drug paid a generic competitor up to $100 million per year to keep consumers from benefitting from the introduction of low-cost generic alternatives. 30

In 1997 and 1998, pharmaceutical manufacturers spent $148.5 million to lobby federal officials 31

The 25 highest paid executives in the 12 companies studied made $545.5 million in annual compensation, excluding unexercised stock options in 1998. The average compensation for the 25 executives was $21.8 million. The median compensation for these executives was $15.1 million.

The 25 executives with the largest unexercised stock option packages in 1998 had stock options valued at $2.1 Billion in 1998. The average value of unexercised stock options for these 25 executives was $84.7 million. The median unexercised stock option package for these executives was $58.3 million.

The highest paid executive in each of the 12 companies received average compensation, exclusive of unexercised stock options, of $28.0 million in 1998. The median compensation for these 12 executives was $32.9 million. Taken together these executives received a total of $335.6 million in compensation in 1998.

The executive with the largest valued unexercised stock options in each of the 12 companies had stock options worth, on average, $103.1 million in 1998. The median value of unexercised stock options was $91.2 million. Taken together, these 12 executives held stock options valued at $1.2 billion.

The 63 executives from the 12 companies received, exclusive of unexercised stock options, $660.5 million in 1998, and an average compensation of $10.5 million.

The value of unexercised stock options for these 63 executives was $2.7 billion and averaged $43.1 million per executive.

* *Unless otherwise noted, statistics in this section were obtained from analyzing information available on public Securities and Exchang Commission filings for public trade corporations.

The Pharmaceutical and Research Manufacturers of America (PhRMA) is running a well-funded and well-organized campaign against providing senior citizens with affordable access to prescription drug or prescription drug coverage under Medicare. They've enlisted a number of healthcare groups, including the Seniors Coalition, Healthcare Leadership Council, National Kidney Cancer Association, National Kidney Foundation, and the Cancer Research Foundation of America, to participate. But it is important to note that these groups have a conflict of interest: they all receive funding from the pharmaceutical industry. 32

Under the guise of "Citizens for Better Medicare," the pharmaceutical industry association (PhRMA) is spending approximately $30 million dollars on ads in an attempt to kill the President's Medicare drug plan.

PhRMA's radio and tv commercials have brought you a fictitious "Flo" - the senior citizen who adamantly states that she doesn't want "big government in her medicine cabinet."

Flo may not want big government in her medicine cabinet, but it is clear that PhRMA wants "big government" around when it comes to national funding for medical research and protecting the patents for drugs so that they can keep overcharging uninsured seniors.

A new phony "consumer" coalition appeared in Washington on September 30, 1999 -but at least this one is being honest with its acronym if not its name. This group of business, pharmaceutical companies and for profit health care industries, have all joined together to take 'AIM' at efforts to protect and improve Medicare for beneficiaries.

AIM members include the Pharmaceutical Research and Manufacturers of America, the National Association of Manufacturers, and the American Association of Health Plans, among others.

Seniors had better beware of AIM's claims. AIM is just another wolf in grandma's clothing and seniors need to know what the wolf is really up to - the group doesn't represent senior citizens, it represents very profitable industry interested in maintaining the status quo -- no outpatient drug coverage under Medicare.

Drug company coalitions do not want Medicare to purchase drugs because this would put

an end to their practice of double-charging seniors without drug coverage for their

1 Alan Sager and Deborah Socolar, Affordable Medications for All, Access and Affordability Monitoring Project, Boston University, (July 1999).

5 National Academy of Social Insurance, A Medicare Prescription Drug Benefit, http://www.nasi.org/Medicare/Briefs/medbr1.htm (April 1999).

7 National Economic Council, Domestic Policy Council, Disturbing Truths and Dangerous Trends: The Facts About Medicare Beneficiaries and Prescription Drug Coverage, (July 22, 1999).

9 In re Brand Name Prescription Drugs Antitrust Litigation, 1996-2 Trade Cas. (CCH) T 71,449 (N.D. Ill. June 21, 1996).

10 Congressional Research Service, Medicare: Prescription Drug Coverage for Beneficiaries, (April 19, 1999).

12 Barents Group LLC, The Henry J. Kaiser family Foundation, Analysis of Benefits Offered By Medicare HMOs, 1999: Complexities and Implications, (August 1999).

13 Mercer/Foster/Higgins, National Survey of Employer-Sponsored Health Plans, (1997).

14 EBRI Issue Brief Number 208, Prescription Drugs: Issues of Cost and Quality, (April 1999).

15 Special Committee on Aging, United States Senate, Staff Report, Serial No. 102-F, (September 1991).

16 Dr. Morris B. Mellion, Testimony of the Blue Cross and Blue Shield Association on Prescription Drug Benefits and the Medicare Program for the Committee on Finance, U.S. Senate, (June 23, 1999).

17 Scott-Levin, The Pharmaceutical Industry: More Reps and More Promotion Fuel New Launches, press release, (June 18, 1999).

18 Pharmaceutical Research and Manufacturers of America, Pharmaceutical Industry Profile 1999, Figure (1999).

19 National Institute for Health Care Management Factors Affecting the Growth of Prescription Drug Expenditures, Barents Group LLC, (July 1999).

21 Alan Sager and Deborah Socolar, Affordable Medications for All, Access and Affordability Monitoring Project, Boston University, (July 1999).

22 Pharmaceutical Research and Manufacturers of America, PhRMA Annua Survey, http://www.pharma.org/pdf/publications/industry/pdf99/tables.pdf (1999)

23 Fortune Magazine, Fortune 500, htt1)://www. pathfinder. com/fortune/fortune5 00/ind ex.html (1999).

24 Alan Sager and Deborah Socolar, Affordable Medications for All, Access and Affordability Monitoring Project, Boston University, (July 1999).

25 Pharmaceutical Research and Manufacturers of America (PhRMA), Leading the Way in the Search for Cures, http://www.pharma.org/publications/brochure/leading/index.html (1998).

27 Alan Sager and Deborah Socolar, Affordable Medications for All, Access and Affordability Monitoring Project, Boston University, (July 1999).

28 New Democrat Coalition, The R&D Tax Credit Benefits All Industries, fact sheet, (1999).

29 Common Cause, Follow the Dollar Reports, Legislative Battles and Soft Money, http://www.commoncause.org/publications/aug99/803099_legbattles.htm , (August 30, 1999)

31 The Center for Responsive Politics, http://www.opensecrets.org/lobbyists/98catorders/H04.htm , information processed from lobbying disclosure forms, (downloaded Octoer 11, 1999)

32 Public Citizen, Pharmaceutical Industry's Propaganda Campaign, Against the Prescription Drug Fairness for Seniors Act, http://www. citizen. org/congress/drugs/industrycampai ign. him, (1999).