The Medicare Part D Prescription Drug Scandal

george w. bush
George W. Bush (Wikipedia)

One of the worst things the George W. Bush administration inflicted upon the American people, second only to the debacle in Iraq, was the sweetheart deal for drug companies that was included in the 2003 Medicare Prescription Drug, Improvement, and Modernization Act (also called the Medicare Modernization Act or MMA). The primary feature of the MMA was the creation of a prescription drug benefit for Medicare beneficiaries, now called Medicare Part D. While prescription drug coverage, of course, is vital to many senior citizens, the way the Part D program was implemented is disgraceful.

Speaker Dennis Hastert introduced the MMA, with Bush’s support, in the Republican controlled U.S. House of Representatives in June of 2003. While Congress was debating the bill, Thomas Scully, the Bush administration’s head of the Centers for Medicare and Medicaid Services (CMS), lied to Congress about the projected cost of implementing the Part D benefit. Scully also threatened to fire Medicare’s chief actuary, Richard Foster, if he revealed that the true estimated cost of the Part D program was $500-$600 billion over 10 years, instead of the $400 billion that the White House was telling Congress. (A subsequent report by the Congressional Research Service found that the Bush administration broke federal law by withholding this information from Congress.)

A Sweetheart Deal for the Drug Companies

Congress finally approved the MMA in November after some close and suspicious votes. The drug industry lobby, the biggest lobby in Washington, D.C., undoubtedly paid a major role in its passage. The new law, for example, didn’t include any significant cost-control provisions. In fact, it specifically prohibited Medicare from establishing a drug formulary or from negotiating prices with drug companies. Also, after the bill’s passage, former Congressman Billy Tauzin, R-LA, who steered the bill through the House, retired and took a $2 million a year job as president of Pharmaceutical Research and Manufacturers of America (PhRMA), the main drug industry lobbying group. Furthermore, Thomas Scully was found to have been looking for a new job as a pharmaceutical lobbyist while the bill was still working its way through Congress. And a total of 14 congressional aides went to work for the drug and medical lobbies after the bill’s passage. Subsequently, according to a 2013 CMS report, the Medicare Part D program added about $318 billion to the national debt through 2012, and is projected to add $852 billion over the next 10 years.

The social service agencies of most foreign governments negotiate for volume discounts with drug companies. The U.S. Department of Veterans Affairs is allowed to do it, and it’s been estimated that the VA pays between 40% and 58% less for drugs, on average, than Medicare Part D. Economist Dean Baker estimated in 2012 that Medicare could have saved taxpayers at least $332 billion and possibly as much as $563 billion if the agency wasn’t required by the MMA rules to pay whatever prices the drug companies want.

Allowing Medicare to negotiate drug prices would obviously be fair way to significantly cut government spending and reduce the federal budget deficit. But that would reduce the profits of drug companies, and most Republicans believe drug company profits are more important.

Updates

On May 11, 2018, President Donald Trump announced his plan to lower drug prices for Americans. During the 2016 presidential election campaign Trump had promised to allow Medicare to negotiate volume discount prices for the drugs it buys. But Trump’s proposal failed to include that measure. The stock prices of drug companies rose after his speech.

On May 17, 2018, the FDA released a list of 52 drugs it said faced delays in getting generic versions on the market because of “gaming” by drugmakers.

On June 5, 2018, the U.S. government’s annual report on Medicare and Social Security said that, unless some changes are made, Medicare will become insolvent in 2026.

On January 18, 2019, the Trump administration announced a new plan to lower prescription drug prices for Medicare patients. The plan, however, still failed to propose to allow the government to negotiate discounts for large volume Medicare drug purchases, and was widely criticized for allowing medical insurance companies to police pharmaceutical costs, which could allow companies to refuse to cover medications they consider too expensive.

The Real Threat to American Freedom

spirit of 76
The Spirit of ’76 (Wikipedia)

There was a lot of wood smoke in the air in my neighborhood during the last couple of nights. This was in spite of the fact that the Maricopa County Air Quality Department had declared  No Burn days. (Phoenix metro residents are prohibited from burning wood in their fireplaces on No Burn days because the smoke, combined with certain weather conditions, creates dangerous levels of particulates in the air.)

People who burn wood in their fireplaces on these days can be fined but I knew that whoever was violating the ban in my neighborhood probably wouldn’t get caught because the county doesn’t have many inspectors. It’s highly unlikely that any of my neighbors needed to burn wood to heat their houses, so they were probably doing it because they thought it was romantic to use their fireplaces during the holidays. But that’s a poor excuse, because wood smoke, in addition to being annoying, is a serious health threat to people with respiratory problems. Furthermore, too much smoke in the air could cause Maricopa County to fall out of attainment with federal health standards, which could lead to more severe air quality regulations.

Violating a wood burning ban might seem like a minor problem in the greater scheme of things, but I think it illustrates a more serious problem in America today. I’m talking about the widespread anti-government sentiment in our society. It seems to me that there are more people than ever before who believe the biggest threats to our freedom come from government regulations. I think this attitude was legitimized during the Ronald Reagan presidency. For example, one of President Reagan’s most famous quotes was, “The most terrifying words in the English language are: I’m from the government and I’m here to help.”

I have a hard time believing my wood-burning neighbors weren’t aware of the No Burn days, because the county has done a great job of publicizing them. I suspect their attitude toward the wood burning ban was, “Screw the government, they can’t tell ME what to do.” But it wasn’t the government they were screwing, it was their fellow citizens.

Unfortunately, many Americans have come to believe that freedom means they should be able to do whatever they want. But that’s never been the case. Freedom doesn’t mean you have the freedom to do things that are socially irresponsible.

The corrosive belief that our government is the enemy these days is largely the result of the constant stream of clever talking points fed to sympathetic politicians and media personalities by the numerous, well-funded, Orwellian-named, right-wing think tanks. Take a look, for instance, at what happened after the 2008 financial crisis that produced the Great Recession. The crisis was primarily the result of a lack of government regulation in the financial sector. But it wasn’t long afterwards that many Americans were convinced they should instead be angry about how the government intervened in the economy to prevent an economic collapse and promote a recovery. Another example is the rise of the Tea Party, and how they focus their complaints solely on the federal government and ignore the problems caused by the private sector.

Some government regulations are can be irrational and onerous, but the vast majority of them provide a useful purpose – and they can always be changed by the politicians we elect. Effectively administered government regulations will become more and more important as private corporations continue to grow in size and power. But if the entire regulatory process is demonized, the government can’t do its job. I suspect that’s just what the people who fund the conservative think tanks want.

Update

In November of 2016 Republican candidate Donald Trump, a millionaire businessman, won the electoral vote. One of his campaign promises was to radically deregulate the U.S. economy. After taking office, Trump appointed many corporate executives to high level positions in the government, including Wall Street financier Steve Mnuchin to Secretary of Treasury.

Republican Hypocrites on the AZ Corporation Commission

Gary Pierce, Arizona Corporation Commission
Gary Pierce (AZ Corporation Commission)

In November, 2013, the Arizona Corporation Commission (ACC), which regulates the state’s utilities, voted by a 3-2 margin to allow Arizona Public Service (APS) power company to add about $5 to the monthly bills for its customers who install rooftop solar panels.

APS had asked the ACC to be able to charge solar customers an additional $50 to $100. They argued that homeowners with solar panels were benefiting from their access to the power grid while avoiding the costs of maintaining it. The problem, APS claimed, was the practice of net metering, wherein APS must pay pay its solar customers a retail price for the excess power they generate. APS warned that as more homeowners install solar panels, the effect will be to “unfairly” shift more of the cost of their electric grid maintenance to non-solar customers. The Commission’s widely-watched decision to impose a fee of just $5  was seen as a win by most solar energy proponents, especially since APS was reported to have spent about $3.7 million on advertising to promote the higher fee.

The two ACC Commissioners who voted against the fee, Gary Pierce and Brenda Burns, said they did so because they thought $5 was too little. Pierce said he didn’t think it did enough to protect non-solar ratepayers.

But Pierce apparently wasn’t worried about protecting other ratepayers when he became ACC chairman in January, 2011, after Republicans took control of the Commission in the 2010 election. One of the first things Pierce did was to try and eliminate the fees charged for power line extensions.

A few years earlier, when the ACC was controlled by Democrats, it had voted to stop Arizona power companies from providing free power line extensions. ACC Commissioner Kristin Mayes explained that all ratepayers shouldn’t have to bear the cost of line extensions, and growth should pay for itself. The free line extensions were also blamed for promoting urban sprawl and wildcat subdivisions.

But real estate interests complained loudly that the end of free power line extensions had devastated the market value and saleability of rural parcels located off the grid. (In other words, they’d lost their subsidy.)

So Pierce said he believed that reinstating free line extensions would help the economy and improve real estate prices. In February, 2011, he succeeded in getting the ACC to make it free for UniSource power company of northwestern Arizona to install power line extensions of 400 feet or less (more than the length of a football field). Then in July, 2011, the ACC voted to reinstate free power-line extensions to new customers within 500 feet of Tucson Electric Power (TEP) company’s distribution system.

According to UniSource, the price of a power line extension of this length in 2011 was about $4,000 to $7,000. The existing ratepayers served by UniSource and TEP are now having to help pay for these extensions to new customers. (APS has so far succeeded in maintaining the fees it charges for power line extensions.)

It’s difficult to understand how Commissioner Pierce could be so worried about the costs to non-solar ratepayers supposedly caused by net metering, when he was so eager to have power line extensions paid for by existing ratepayers. Maybe it’s because the APS scheme to impose a new fee on solar customers was never really about unfair electric grid maintenance costs.

Update

On May 23, 2017, former Arizona Corporation Commissioner Gary Pierce was indicted in federal court for conspiring to accept bribes from Johnson Utilities owner George Johnson in exchange for Johnson receiving favorable treatment from the Commission.