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Exhibit A: Medicare, The Corporate Welfare Program

Congress excels at enriching corporate welfare programs—in this case, Medicare. Ironically, it happened while Congress is struggling to rein in Medicare’s gargantuan deficits with belt-tightening measures that would hit people who paid into the system throughout their working years. This time, the prime beneficiary was Big Pharma, particularly one company....

Amgen. Yet the giant biotech drug maker had gotten into a heap of trouble on another issue. On December 19, when no one was supposed to pay attention, and when everyone was supposed to be distracted by the Fiscal Cliff theatrics, Amgen pleaded guilty to “illegally introducing a misbranded drug into interstate commerce.” It settled a bevy of criminal and civil issues by agreeing to pay $762 million—as the Department of Justice pointed out—”the single largest criminal and civil False Claims Act settlement involving a biotechnology company in U.S. history.”

Even while the settlement was taking its course, Amgen’s lobbyists—Open Secrets lists 75, from 25 lobbying groups—were scurrying around the corridors of power in Washington to have an innocuous-sounding but highly profitable paragraph regarding its dialysis drug Sensipar inserted into the Fiscal Cliff bill.

The New York Times, in its article on that issue, described the depth and complexity of Amgen’s “efforts in Washington” where it has “deep financial and political ties” to various lawmakers, including Senators Max Baucus (Democrat of Montana) and Orrin G. Hatch (Republican of Utah) “who hold heavy sway over Medicare payment policy as the leaders of the Finance Committee.” The company also “worked hard” on its influence with the White House.

But even that wouldn’t be enough firepower.

Amgen and its foundation have directed hundreds of thousands of dollars in charitable contributions to influential groups like the Congressional Black Caucus and to lesser-known groups like the Utah Families Foundation, which was founded by Mr. Hatch and brings the senator positive coverage in his state’s news media.

Amgen’s former employees are now working, where else, on Capitol Hill, including “Dan Todd, one of Mr. Hatch’s top Finance Committee staff members on health and Medicare policy.” He was, the Times reported, “directly involved in negotiating the dialysis components of the fiscal bill, and he met with ‘all the stakeholders,’”—including Amgen lobbyists—“Mr. Hatch’s spokeswoman said.”

In early January, this massive firepower succeeded. The House, incapable of arriving at any kind of Fiscal Cliff deal, had thrown in the towel. The Senate had taken over the bill, and in the process, a paragraph had been slipped in. Amgen’s name didn’t appear in it, nor did its drug Sensipar, but that nugget is now tucked into Section 632 (b) of the Fiscal Cliff bill, on page 108, under the cryptic heading, “TWO-YEAR DELAY OF IMPLEMENTATION OF ORAL ONLY ESRD-RELATED DRUGS IN THE ESRD PROSPECTIVE PAYMENT SYSTEM.”

It edged in stone an additional two-year delay of a Medicare cost-cutting measure, in place for other dialysis drugs since 2011, when Sensipar was exempted for two years. It came despite a very inconvenient report in late December by the Government Accountability Office on how Medicare overpaid up to $880 million in 2011 for these dialysis drugs. And there is a history.

About a decade ago, Amgen’s blockbuster drug, Epogen—also used by dialysis patients—got tangled up in doubts about its effectiveness and safety. The Times reports:

Researchers found that Medicare’s practice of reimbursing providers with separate payments for the drugs and for dialysis treatments encouraged overprescription because the providers made healthy profits with each dose. They also found that high doses posed cardiovascular risks to patients.

In 2008, Congress undid that perverse and potentially risky profit incentive. It required that Medicare pay for dialysis and associated drugs with a bundled rate. In 2011, when the changes kicked in, providers found that they could pump up their profits by cutting down on these costly drugs. Overprescription and high doses stopped. Sales plunged by 23%.

But Amgen’s lobbyists had finagled a new deal. Among the goodies: Sensipar and other oral drugs for dialysis patients—unlike Epogen, which is injectable—were granted a two-year delay. Providers would continue to profit from prescribing Sensipar to the max; Amgen would profit by being able to avoid Medicare price constraints and by maintaining robust sales volumes; and Medicare would quietly pay for it all—and worsen its deficit. Corporate welfare at its best.

But the two-year bonanza would expire in 2014—hence Amgen’s renewed “efforts in Washington” that resulted in an extension of the bonanza for two additional years, starting in 2014. And Medicare will foot the bill: up to $500 million. Given the profit Amgen will be able to wring from that $500 million, its lobbyists were probably among the most underpaid bunch of people around.

Healthcare spending ballooned to $2.7 trillion, 17.9% of GDP, or $8,680 per capita. But households, pushed to the limit and struggling, have lowered their share over the years; so have businesses. What gives? Medicare! For that massive debacle, read.... Paradigm Shift For The Healthcare Expense Monster.

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Reader Comments (1)

That is the point I usually make on this.
Money is spent very inefficiently. Usually that is done more by governments than by private business and households. Healthcare in the US is an exception.

What it basically does is reduce the standard of living (as part of the money available for it is used for buying rubbish). Which would not be that bad if everybody paid his own stuff and was pleased with that. However that is not the case. Large chunks end up on the general budget.

The economy would have to be resettled/rebalanced if this would be corrected. But what it effectively does it give non-healtcare people (most of us/US) more spending power by not transferring large parts of it to the healthcare sector. In a way it is reversing transfers from the rest of us to the healthcare sector workers. The latter in the widest sense more likle all generating income from that sector, hospital builders and Bigpharma included.

Probably one of the ways the middleclasses in the West can keep their standards of living. When their real nett income is reduced at the same time reduce expenditure as well without getting a worse product in return.
Have to realise however that lots of people like the much better service part of US healthcare and look willing to pay for that. Many socalled economists totaly neglect that. So imho the only solution is 2 way system. With the cheaper part not worse for the medical part (but the' service' around it cut). May be with the exception of some of the fat and the possibility to get extra insurance for that. And people who can pay can keep doing what they want.

Another point is that we expect mediacl science to develop but are in many countries not willing to pay for that. We only find ourselves entitled to it when the costs are just one minute away (although in the strictest sense we never have paid the insurqnce premium for that). A lot of countries simply totally ignoring patents. At the end of the day if we want science in this field to improve it simply cost money and there are already too many freeriders around to make the system sustainable.
January 22, 2013 | Unregistered CommenterRik

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