Ask Your Doctor If This Sweetheart Deal Is Right For You

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Jonathan Cohn in TNR:

Critics have complained that a drug industry got a sweetheart deal when it struck a bargain with the White House and Senate Finance Committee over health care reform.

There’s new reason to think those critics were right.

It comes from an October forecast by IMS Health, a respected global research and consulting firm. The report, which IMS distributed to clients and which a source provided, projects that the drug industry will see average annual growth of 3.5 percent between 2008 and 2013.

Back in March, IMS had projected no growth at all during that same five-year stretch. In fact, it projected the drug business would actually contract slightly–with negative annual growth of 0.01 percent.

What changed? A major factor, according to IMS, was the emerging details of health care reform.

Health reform, as currently envisioned, wouldn’t merely bring coverage to the uninsured. It would also fill in the “donut hole” in Medicare Part D–the gap in coverage that leaves beneficiaries with serious health problems paying for hundred if not thousands of dollars in out-of-pocket prescription costs.

In addition, because it will take several years to close the donut hole, reform relies on voluntary discounts from the pharmaceutical industry to make drugs more affordable in the intervening years. But those discounts would apply only to name-brand drugs, not generics.

Put it all together, and you have more demand for name-brand drugs. As a result, IMS believes, pharmaceutical companies would be able to raise their prices–enough to boost revenue significantly: “If this bill is implemented,” the report concludes on page 138, “an increase in prices on new drugs can be expected.”

Exactly what this would mean in actual dollar terms isn’t clear. But from some back-of-the-envelope calculations, it appears that IMS thinks revenues for the makers of name-brand drugs could grow by hundreds of billions of dollars over the next ten years. (To be clear, this is a very rough guess, based on extrapolations from the report’s tables–and I have not run it by experts.)

Ezra Klein:

This isn’t necessarily surprising. Health-care reform, in theory, gives the pharmaceutical industry many new customers who can suddenly afford drugs, and it also closes the donut hole in Medicare Part D, making it easier for seniors to purchase drugs. But as Jon Cohn says, it does suggest that the industry could contribute a little more toward the total cost of reform. It also suggests that we should think about that “contribution” a little differently. Pharma isn’t offering rebates for seniors out of the goodness of their hearts. They’re investing in a new business venture that will bring them substantial profits.

Doug Bandow at American Spectator:

It is yet another example of how the greatest enemies of capitalism tend to be the capitalists.

Only time will tell, however, whether proponents of government control will live up to the deal.  Or whether they will turn on the industry as a convenient source of financial savings when spending skyrockets, as it will.  If that happens, the rest of us should wave cheerfully as Big Pharma finds itself transported to the political guillotine.

Michael Cannon at Cato:

Cohn concludes, “the drug industry has enormous leverage in Congress.” But Cohn still supports the president’s health care takeover. Or is it PhRMA’s health care takeover?

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Filed under Health Care, Legislation Pending

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