Thursday, November 19, 2009

“Hey, Look At All the Money We're Saving You!”

It’s an old trick, often used by trustees in bankruptcy knowing that vulture-consumers will often descend on a retailer filing bankruptcy looking for super-bargains: just prior to or even immediately after the bankruptcy filing, they will jack up all of the retail prices to their highest levels so that the ultimate discount tags make it appear as if the consumer is making out like a bandit. And you can pretty much spot an industry that is about to experience some form of governmental regulation that will impact consumer pricing structures: they’re the ones pushing their retail prices and their consumer fees through the roof in anticipation of the new rules.

The credit card companies did it – pushing their interest rates, collection practices and fees to the limit before new federal statutes froze or reduced their consumer charges and credit practices. Banks have jacked up their overdraft fees, knowing that they would have to back off under pressure. They just wanted to start from a higher plain so that their concessions would look bigger, and politicians can make more outrageous claims for “success” when in fact, they wind up locking in the high rates and bad practices that the regulations and statutes were intended to defeat in the first place.

And so it is with the Achilles heel of healthcare reform: figuring out not just how to take care of 30 million consumers who truly were excluded from the system because of cost (there are about 46 million Americans without healthcare insurance all tolled)… but how to place a lid on this sector of our economy where costs have been increasing at multiple of the cost of living for a very long time. Cost control seems elusive as huge lobbying efforts from medical industry incumbents – those who control 16% of our total economy (the next largest percentage of any nation’s economy spent on healthcare is 10%!) and do not want to let go – pressure Congress to relent.

With the support of only two Republicans in Congress so far, the massive campaign contributions from healthcare companies seem to be taking root in the steamroller of opposition to what is currently before the U.S. Senate… oh, and don’t think that these campaign contributions have been relegated to Republicans; virtually every member of Congress, on both sides of the aisle, has been a beneficiary of campaign contributions from one of America’s richest business sectors.

So where are the price-increases most painfully coming from? Try the giant pharmaceutical companies who have recently jacked up their costs to the consumers – in a period of deflationary price reductions – by a whopping 9% average, the largest such increase since 1992. Fearing that their pricing structure will be subject to serious governmentally-mandated reductions, the giant pharmas are pushing the limits now. Analysts suggest that this will add another $10 billion to this year’s cost of pharmaceuticals (which is already pushing $300 billion).

The November 16 New York Times looked at both sides of the issue. The drug companies’ explanation: “[T]hey are having to raise prices to maintain the profits necessary to invest in research and development of new drugs as the patents on many of their most popular drugs are set to expire over the next few years… ‘Price adjustments for our products have no connection to health care reform,’ said Ron Rogers, a spokesman for Merck, which raised its prices about 8.9 percent in the last year, according to a stock analyst’s report.”

The critics? “ ‘When we have major legislation anticipated, we see a run-up in price increases,’ says Stephen W. Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota. He has analyzed drug pricing for AARP, the advocacy group for seniors that supports the House health care legislation that the drug industry opposes… A Harvard health economist, Joseph P. Newhouse, said he found a similar pattern of unusual price increases after Congress added drug benefits to Medicare a few years ago, giving tens of millions of older Americans federally subsidized drug insurance. Just as the program was taking effect in 2006, the drug industry raised prices by the widest margin in a half-dozen years...”

“The drug industry has actively opposed some of the cost-cutting provisions in the House legislation, which passed Nov. 7 and aims to cut drug spending by about $14 billion a year over a decade… But the drug makers have been proudly citing the agreement they reached with the White House and the Senate Finance Committee chairman to trim $8 billion a year — $80 billion over 10 years — from the nation’s drug bill by giving rebates to older Americans and the government. That provision is likely to be part of the legislation that will reach the Senate floor in coming weeks… But this year’s price increases would effectively cancel out the savings from at least the first year of the Senate Finance agreement. And some critics say the surge in drug prices could change the dynamics of the entire 10-year deal.”

Interesting. And let me guess which side you think is telling you the truth.

I’m Peter Dekom, and I approve this message.

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