Introduction, Part I. Part II

Previous diaries in this series described the most important statutes enacted during the past quarter century that created an intellectual property protection (IPP) regime both robust and unique to the pharmaceutical industry.  This diary will rely on the previous ones as background to allow me to discuss the little-known ways in which Congress has ignored consumer interests when legislating that regime and a few of the almost unknown ways the innovator pharma companies exploit the regime to maintain their sales monopolies beyond the time their patents would have expired.

See Introduction and Part I

My last diary described the unique intellectual property regime for the pharmaceutical industry created by the 1984 Hatch-Waxman Act.  This installment will briefly describe additional intellectual property protections (IPP) Congress has granted that industry.  

The following enumeration of major, long-term IPP legislation directed at the pharmaceutical industry is based on a report compiled by The National Institute for Health Care Management (NIHCM) (PDF).  

See the Introduction to this series

Patents are the fundamental intellectual property protection (IPP) for physical product or process inventions.  Patents confer monopoly exploitation of these products or processes on the inventors for 20 years from the time of their submission to The Patent and Trademark Office for approval.  This arrangement allows the inventor to reap profits not reduced by competition for a legally limited time in order to encourage innovation.  It also provides some certainty about the invention’s financial return, allowing investments in the commercialization (PDF) of the innovation.

Until recently, the pharmaceutical industry enjoyed the highest profits of any industry in the Fortune 500.  In recent years, the industry’s position has declined—to fifth place in 2006, and second place in 2007.  These extraordinary profits depend entirely on "intellectual property protections" (IPP).   The most fundamental example of such protection is a patent, a form of IPP available to all inventors.  For big pharma, however, Congress has created a unique IPP regime, one that gives the industry advantages enjoyed by no other industry.

For earlier diaries describing the Congressional push to privatize Medicare at any and all costs, see August,September and October 2006.

The health insurance industry, represented by its trade association, America’s Health Insurance Plans (AHIP) just won its first major victory during the 110th Congress.  It killed a plan to save the Medicare program as much as $8 billion in 2008, $65 billion over the next five years and $160 billion over the next ten years.  Congressional Budget Office, March 21, 2007 (PDF).

We all know that our current healthcare "system" is in crisis.  Some 47 million US inhabitants have no health insurance and therefore very limited, if any, access to healthcare.  That number increases daily.  An incalculable number of people have inadequate insurance; that number also increases daily.  And, as nyceve has repeatedly documented, even those who are "well insured" by today’s standards can never be sure that insurance companies will actually reimburse their beneficiaries for any particular medical service.

On March 1, The Centers for Medicare and Medicaid Services (CMS) told Congress that the prices paid by Part D prescription drug plans would not be revealed to Congress.  This decision makes oversight of the Part D program extremely difficult because in the absence of this information, Congress cannot possibly have any idea if the discounts part D plans negotiate are passed along to beneficiaries, as required by the Medicare Modernization Act (MMA)

In 1992, a Democratic Congress and the first Bush Administration enacted the first "Prescription Drug User Fee Act" (PDUFA I).  Renewed every five years, PDUFA mandated the imposition of "user fees" on pharmaceutical companies.  The companies paid specified sums to the Food and Drug Administration (FDA) for the "service" of approving their drugs.  In exchange, the companies received FDA commitments to adhere to specific and measurable benchmarks and timetables to speed the approval process of drugs for entry into the US market.  Effectively, Congress gave the pharma industry significant financial control over the government agency that decides if industry products can be sold in the United States.  The rationale was that approval of new drugs in the US was too slow.

Nyceve has exhaustively chronicled the denial of claims by private, for-profit insurance companies.  She has illustrated again and again the human cost of these denials.

The Wall Street Journal of February 14, 2007 (subscription) reports on yet another "industry" that feeds on and prospers from the absurdities that characterize what we in the US are pleased to call our healthcare "system".  All direct providers of healthcare services risk receiving no payment for their services and must increasingly rely on highly profitable and parasitic companies to help them collect.  They are parasites because they can only exist in a system built on the denial of payments.

Until last year’s full implementation of "The Medicare Prescription Drug, Improvement and Modernization Act of 2003" (MMA), we had no examples of the privatization of a federal public benefit program affecting a broad large portion of the US population. Previous privatization measures, such as prison building and administration, and the administration of welfare and Medicaid programs have been state efforts affecting much narrower segments of the population.  The Rethug privatizers could describe the wonderful benefits that individual beneficiaries would enjoy as a result of "competition" and "choice" if only Social Security were turned into a system of private accounts owned and controlled by individuals.  There could be only theoretical objections.

Prescription drug prices in the United States are the highest in the world.  Pharmaceutical companies enjoy patents lasting at least twenty years (and as a result of complex legal strategies, often longer).  These patents give the companies legal monopolies that allow them to charge whatever they wish for their drugs.  Other governments regulate prescription prices as a matter of public interest.  The United States government does not do so.

The primary reason for this lack of control on the industry is the raw, untrammeled power of the industry, as manifested in its enormous campaign contributions and lobbying expenditures at the federal and state levels.  But the policy rationale that makes exorbitant pharmaceutical prices at least minimally acceptable in this nation is the incessantly repeated assertion that drug companies must charge such prices in order for them to pay the enormous costs of developing new drugs to treat dreaded illnesses.

Insurance companies and pharmaceutical manufacturers usually come to mind when one thinks of entities that drive up US medical costs.  There are, however, other kinds of organizations that insert themselves into the healthcare delivery "system," perform functions that would be unnecessary in a rational system and have questionable value even in the unsystematic system we endure.  There are also entities that perform essential services, but structure their charges and other operations in such a way that they do nothing more than perpetuate the irrational complexity of the "system" and exploit every user of medical services.

One Pissed off Liberal posted an important diary today.  S/he described the non-partisan Comptroller General's important campaign to alert citizens to the economic disaster we all face as a result of many years of fiscal profligacy. Dailykos' own Bonddad has issued similar warnings.  Nothing below is meant to denigrate or minimize those warnings.  The conditions they address must be addressed, if that is even possible at this point.

For progressives, however, discussing this coming crisis presents significant problems.  The Right Wing is already using the known deficits as a means of attacking Social security, Medicare, Medicaid, and many other programs that benefit the least well off of us.  When the Comptroller General's diagnosis gains greater currency, it will simply play into the hands of those who wish completely to eliminate our extremely frayed "safety-net".

The program rejects the link to Part I.  It is included in Part II.

  Part II

I had expected to devote this installment of the series to an examination of the financial disclosures of various private health insurance companies participating in the Medicare Advantage program (the official name of the system of private plans established by Congress to provide Medicare services).  I hoped to be able to determine how profitable "the new Medicare" was to the companies.  

Previously, I described the little noticed Congressional actions which lay a foundation for the privatization of Medicare.  Today I will describe the major components of that foundation:  a variety of health plans run primarily by insurance companies, but also by some other health industry entities.    

Since they took over Congress in 1994, the Republicans, with the help of a few Democrats, have worked to privatize Medicare.  With the "Balanced Budget Act of 1997" (BBA) and "The Prescription Drug and Medicare Modernization Act of 2003" (MMA), Congress has built a foundation for just this kind of change to Medicare.  

To encourage private plans to enter the market, the BBA increased payments to them above the average cost of traditional fee-for-service (FFS) beneficiaries.  Still plans failed to enter many areas and withdrew from others.  To encourage entry and continuity, the MMA raised average payments even more. Consequently, each beneficiary in a private plan came to cost more than those enrolled in FFS  

More below