Medicare drug benefit.

The conference committee proceeding to hammer out a prescription drug benefit for Medicare keeps getting messier and messier. Forget for a moment that the price tag -- conservatively estimated at $400 billion a year -- is a budget buster. And put aside the notion that the drug benefit will go to the 90% of seniors above the federal poverty line as well as the 10% below. (I don't know where it makes sense to draw the line on this entitlement -- 10% above the poverty line? 25% above? -- but at this price, and in these economic times, you'd think Congress would show a little more interest in targeting this benefit to help those who most need it, not to senior whose incomes can cover drug costs, or whose retirement health plans already include a drug benefit.) Now the plot thickens as conferees deal with the impasse over prescription-drug reimportation. As reported in The Washington Post, the House bill would allow reimportation from Canada and two dozen other countries, while the Senate version would allow reimportation only from Canada. The Boston Globe and others report that 53 senators have signed a letter that says the House version is a deal-breaker for them, and the drug industry trade organization PhRMA supports the senators' position. PhRMA says it's a safety issue: we don't know how those drugs have been stored and transported, and substandard handling practices can reduce the potency of the drugs. The FDA and its parent agency, DHHS, also have historically opposed reimportation on safety grounds. (A nice review of reimportation is in the Sept./Oct. 2002 issue of FDA Consumer magazine.) In addition to the safety issues, PhRMA has another concern that the senators aren't talking about: the impact of "importing foreign government's price controls" on the pharmaceutical industry's bottom line and ultimately on its R&D budgets. Thus, PhRMA "urge[s] Congress and the Administration to . . . overturn foreign governments' price controls on prescription medicines. Foreign governments' policies . . . lead to free-riding on American consumers and reduce the pace of development of new medicines." Using Rep. Bernie Sanders' analysis of drug company profitability (as reported by Forbes), the concern about slashing R&D budgets does seem a bit overdrawn. Reliance on Forbes' numbers has been challenged by the conservative Buckeye Institute, but even by their reckoning, industry profits were at 18.3%. Buckeye was taking aim at a Public Citizen report that pegged industry profitability at a rollicking 33%; Sanders' numbers reflected a more conservative calculation of 18.6%. Even at 18%, industry profits are robust. The policy question for Congress is how much of a hit the industry can take and still produce new drugs that benefit us all.