George W. Bush, the man who singlehandedly revived the Know Nothing Party, has managed to create a social program with minimal government expense. All that's required in the way of funding are the livelihoods of a lot of small drug store owners, and the hopes of Medicare recipients. Fortunately for congressional Republicans, this was done without the need for congressional approval.
On July 12, President Bush, along with representatives of the prescription benefit management companies AdvancePCS, Express Scripts, Caremark Rx, Merck-Medco and WellPoint, announced a plan whereby Medicare recipients would either buy or be given a card which would entitle them to discounts on prescription drugs. As reported by the New York Times, Tommy G. Thompson, the secretary of health and human services, said he hoped the discounts would cut typical retail prices by 15% to 25% or more.
The problem with the plan is that it violates the first two laws of economics: (1) there's no such thing as a free lunch and (2) you can't get blood from a stone. The idea is that so many people will have these cards, pharmacies will have no choice but participate. The fallacy is the notion that pharmacies are grossing enough on prescription drugs to offer a 15-25% discount. They're not. The Bush plan has no provision for government funding, or having the drug manufacturers offer discounts on the cost of drugs; it only squeezes pharmacies.
The companies that are participating in this plan have already cut the profitability of prescription drug sales and can't understand why the same technique won't work for a few million more people. This is the same line of reasoning that believes the best approach to an energy shortage is to drill for more oil -- without wondering what happens when the wells run dry. The prescription plan which the President of All the People presented was put together without any input from elderly people, sick people, or pharmacies -- just prescription benefit managers. It's hard to avoid the impression that lobbyists from these companies sat down in the Oval Office, offered a proposal, and the president, who has asked for further study on regulations that would protect millions of people from on-the-job injury, and billions from the effects of greenhouse gasses, jumped up and said "Yessss! Let's do it!" without thinking of the consequences. That would still be more reassuring than the alternative -- that he understands the consequences and went with the plan anyway.
In the past, pharmacies took a mark-up on cost of goods sold, typically 50%. On a straight mark-up basis, there was room for discounts, particularly if they could be made up by increased volume of sales. The Prescription Benefit Managers have generally replaced mark-ups with fixed fees -- setting the fees arbitrarily, without regard for costs.
This is significant, because when it comes to paying for pharmacy services, cost of goods sold isn't taken into account. The fee, set by the insurer, is the same regardless of the cost of the drug. That's generally fair, since pharmacy is a profession, and the cognitive work involved is the same, regardless of the cost of the medication. Unfortunately, the fees are generally low -- in many cases too low to cover the costs of staying in business.
While the benefit managers don't pay pharmacies on a percentage basis, they evidently expect pharmacies to offer discounts by percentage. A pharmacy that's selling drugs at a 50% mark-up on cost may be able to offer percentage discounts. A pharmacy that's only getting $2.50 over the cost of the medication normally doesn't have enough profit margin to offer discounts. Many pharmacies only stay in business because people prefer to buy their vitamins and sunscreens at the same place they fill their prescriptions. Curious George evidently feels he's done enough for retail pharmacy. By rejecting the Kyoto agreements he's done wonders to promote the sales of sunscreens.
The prescription plan has extra benefits for its member corporations -- and none for anybody else. By setting up their own formularies, the corporate sponsors can promote the sales of some products over others. The sponsoring corporations offer mail-order prescription services, and will have the option of offering these services to their members.
In a press release issued on July 18, the National Community Pharmacists Association announced that it was going to court to block the Bush prescription plan. Among the points they made was:
* HHS set standards for the plan and anticipates spending several million dollars to implement it without congressional authorization to do so. The law specifically states that in order for HHS to set standards and expend funds, they must have permission from Congress to do so.
* The Federal Advisory Committee Act requires prior notice and open meetings when developing a government program. HHS met neither of these criteria during the development of the plan.
* By setting up the consortium to create, administer and enforce the standards, HHS delegates all power to a private company, which is unlawful.
What we really need is a well funded prescription plan for everybody. It's the type of thing that could be funded out of the federal surplus -- only it's already too late.
Sam Uretsky is a writer and pharmacist living on Long Island, N.Y.