Pharmaceutical industry executives are frequently accused of greedily putting “profits before patients” (as if drug companies could profit by means other than serving patients). This accusation would be unjust if these executives were after profits. Unfortunately, however, today’s pharmaceutical executives are not after profits. They are after loot. They seek to gain, through legislation, money coercively taken by the government from American citizens. But, unbeknownst to these executives, their looting is self-destructive. In fact, by aiding and abetting the government in its violation of individual rights, the pharmaceutical industry is committing suicide. To see why, let us begin by examining some of the ways in which the industry calls for the violation of rights and receives loot as a result. Then we will turn to the reasons why this practice is killing the pharmaceutical industry.

Consider the industry’s support for the Medicare Modernization Act of 2003 (MMA). The MMA expanded Medicare to include coverage of prescription drugs for Americans over the age of 65 and was the largest expansion of welfare in America since the creation of Medicare itself.1 When the Act took effect in 2006, it made the U.S. federal government the single largest purchaser of prescription drugs in America.2

In 1999, years before this bill had been conceived, Alan Holmer, then president of Pharmaceutical Research and Manufacturers of America (PhRMA), the industry’s lobby group, made clear in a trade journal the industry’s view that “the question is not whether, but how, to expand Medicare coverage of prescription drugs.”3 In 2000, Holmer testified before the Senate Finance Committee that at “some point in the not-too-distant future, a Congress will pass, and a President will sign, legislation to expand drug coverage for Medicare beneficiaries. . . . Expanded drug coverage for seniors will be a positive development.” Holmer emphasized:

The pharmaceutical industry strongly supports . . . expanding Medicare coverage of prescription medicines. . . . Medicare beneficiaries need high-quality health care, and prescription medicines often offer the most effective therapy for them. We believe that the best way to expand prescription drug coverage for Medicare beneficiaries is through comprehensive Medicare reform.4

The pharmaceutical industry got its desired “reform,” and when the MMA became law, the government not only began dictating the terms by which private insurers would provide prescription drug coverage to Medicare beneficiaries, it also began spending tens of billions of dollars annually to subsidize that coverage.

From where does the U.S. government get this money? The government does not create wealth; it does not produce anything. Every penny the government spends on drugs (or anything else) comes from taxpayers. The government gets this money by taking it under threat of force from hard-working Americans (or by printing or borrowing it, which is deferred taxation). This is legalized theft; the money taken by force is loot. And when the government spends this loot on prescription drugs for the elderly, the loot is passed on to the pharmaceutical industry.

Now, merely receiving loot from the government does not in and of itself constitute the moral crime of complicity in the government’s coercion. But the pharmaceutical industry is not merely receiving money from the government as a result of the MMA. The industry advocated this socialist scheme of forced wealth redistribution from the start, supported it at every stage of development, and is now receiving the loot as planned. Although the industry exchanges drugs for the loot, the entire arrangement on the part of taxpayers whose money is taken by force to buy the drugs is involuntary. Taxpayers do not choose to fund the industry in this way; they are forced to do so—by a law that the pharmaceutical industry enthusiastically helped to create.

When Congress and President George W. Bush—with the eager support of the pharmaceutical industry—expanded Medicare to include prescription drugs, the pharmaceutical industry gained millions of new customers, customers whose payments are made with loot. And we are talking about a lot of loot: American seniors (aged 65 and older) on average take three to five prescription medications, not counting supplements, over-the-counter drugs, and other nonprescription remedies. In 1999—before the MMA was made law—this age group composed 13 percent of the population but consumed 30 percent of all prescription drugs sold in the country.5 Thus, the pharmaceutical industry stood to increase its revenues immensely when taxpayers were forced to fund expanded drug coverage for seniors. By 2008, the federal government was spending $44 billion annually on Medicare prescription drug coverage.6

In supporting the MMA, the pharmaceutical industry supported a massive violation of individual rights. It aided and abetted the U.S. government in a scheme that forcibly and continually transfers wealth from American taxpayers to pharmaceutical companies.

Not content with the billions in annual loot that it gains through the MMA, the pharmaceutical industry is now after more.

Recall that in 1994, when the Clinton administration championed “universal health care,” insurance companies produced the “Harry and Louise” advertisements, in which the eponymous couple, sitting at their kitchen table, discussed the dangers of the Clinton administration’s socialist proposal. In 2009, Harry and Louise have returned—but this time, the pair is for “universal health care,” and, this time, the multimillion-dollar campaign in which they appear is sponsored by . . . PhRMA.

In one of the television ads, the new Harry and Louise exhort viewers: We “need good coverage people can afford—coverage they can get even if they have a preexisting condition, and coverage they can keep if they change jobs.” We “can get the job done this time” with “a little more cooperation [and] a little less politics.”7 Ironically, what PhRMA means by “a little less politics” is a lot more politics.

The current PhRMA president and CEO, Billy Tauzin, calls for “public health initiatives,” and for the government to “foster adherence to evidence-based best practices and therapies.” By that he means the government should force doctors and insurers to adhere to a set of government-authorized treatment guidelines, taking treatment decisions out of the hands of doctors and putting them in the hands of bureaucrats. Tauzin, speaking on behalf of the pharmaceutical industry, calls for the government to force insurance companies to cover anyone and everyone—regardless of preexisting conditions. “Health care reform . . . done right,” he says, means “Expanding health insurance coverage to all Americans” and “assur[ing] that those most in need of care are not denied coverage or priced out of the market because of pre-existing conditions.”8 And, says Tauzin, the industry wants all of this to be guaranteed by the government: “America’s pharmaceutical research and biotechnology companies support comprehensive health care reform, guaranteeing that every American has access to high-quality, affordable health care coverage and services.”9

PhRMA is once again calling for the government to increase its violation of individual rights on a massive scale. This time, it is calling for what amounts to a complete government takeover of the health-care industry—a takeover that will, at least for a while, funnel even more loot into the pharmaceutical industry.

Under this new scheme, doctors will be forced to subordinate their expert medical judgment to that of bureaucrats. Health insurers and customers will be forbidden to contract with each other according to their own best judgment. Insurers will be forced to insure customers with preexisting conditions whom they might otherwise not insure. Tens of millions of currently uninsured Americans will be forced to purchase coverage or accept some kind of “public option” or welfare policy or pay a steep fine. Taxpayers will be forced (directly or indirectly) to pay for those “public options” or welfare policies. Millions of Americans who currently have high-deductible individual policies will be forced to purchase more comprehensive insurance. Tens of billions of dollars more will be spent annually on prescription drugs, whether by coerced individuals and insurance providers or through government-subsidized programs—which, according to the Congressional Budget Office, will cost Americans more than a trillion dollars over the next ten years.10 And the pharmaceutical industry will thereby receive billions of dollars more annually in loot.11

Again, the point is not merely that the industry stands to receive taxpayers’ money from the government; that would not in and of itself constitute a violation of rights. The point is that the pharmaceutical industry is lobbying for this rights-violating “reform”—just as it lobbied for the MMA. The industry is seeking, through legislation, to gain money that is to be taken coercively by the government from American citizens.12

How does the industry get away with this plunder? Why do American taxpayers not see this for what it is and erupt in protest? The industry couches its advocacy of this scheme in the language of “the common good” and “the public interest” and “the good of the economy.”

In a recent ad campaign, PhRMA partnered with such groups as the American Medical Association and the Service Employees International Union to sponsor the message that “Quality, affordable health care . . . [is] something we must do for America’s economy.”13 And, in its “Platform for a Healthy America” statement, PhRMA says, “America is going to get sicker and poorer and less competitive with the world if we sit on the sidelines and get nothing accomplished this year.”

Unfortunately, because many Americans accept such woozy notions as “the common good” and “the public interest” as the standard of value, few Americans see through such rhetoric. In point of fact, what will make America sicker and poorer and less competitive—and what will eliminate quality, affordable health care—is the government takeover of the health-care industry advocated by PhRMA. Americans forced to hand over their earnings to the government clearly cannot spend that money on their own health-care needs; this cannot possibly make them healthier. Nor are Americans richer for being robbed by the government; they are plainly poorer. Nor are American businesses more competitive when the government precludes them from producing and trading their goods and services according to their own best judgment; to the extent that the government dictates how businesses may and may not do business, competition is stifled. (Businesses forced to provide “comprehensive” insurance to their employees or pay a hefty payroll tax, for instance, will be less competitive than companies in countries without such requirements.)

More important than any of these economic points, however, is the moral point: Americans have a moral right to act on their own judgment to contract (or not) as they see fit and to keep, use, and dispose of the product of their effort. The government has no moral (or constitutional) right to dictate the terms of health insurance contracts, or to force Americans to pay for other people’s health-care needs. And the pharmaceutical industry has no moral right to aid and abet the government in its violation of Americans’ rights or to collect the consequent loot.

We have seen some of the ways in which the pharmaceutical industry advocates the violation of individual rights and collects loot as a result. Let us turn now to why, in doing so, the industry is courting its own demise.

When the pharmaceutical industry loots from Americans under the auspices of “the common good,” it sets itself up to be looted by the very government through which it obtains its plunder. If the “common good” can be used as a rationale for violating the rights of taxpayers, doctors, patients, and insurance companies, then it can certainly be used as a rationale for violating the rights of drugmakers. After all, the argument goes, people need prescription drugs, and they need them to be inexpensive if not free. If the government and the health insurance industry—which is increasingly becoming an arm of the government—have to pay for everyone’s prescriptions, then the prescriptions are going to have to be cheap. If they are not cheap, then the government will have to do something about it. This is precisely the argument that is now coming back to haunt the pharmaceutical industry.

Many seniors who obtained prescription drug coverage under the MMA expansion were already covered under Medicaid, which pays lower rates for drugs than does Medicare. When the MMA took effect in 2006, the government began paying Medicare’s higher rates for these so-called “dual eligibles”—which means that, for the past three years, drug companies have reaped much more revenue on dual eligibles’ prescriptions than prior to the expansion. In August 2009, Representative Henry Waxman of California accused the industry of having made “windfall profits” from the Medicare expansion and demanded that drug companies pay back the difference between the lower pre-MMA rates and the higher post-MMA rates—to the tune of $3.7 billion. “We want [that money] back,” said Waxman. “We want to make sure the windfall for the drug companies does not continue, and we want to recover the money that has been a windfall.”14 And, sure enough, the House bill for further health-care “reform” passed in November 2009 includes provisions not only for the $3.7 billion windfall-profits rebate sought by Waxman, but also for continuing rebates from drug companies—at an expected cost to the industry of $60 billion over the next ten years.15

The industry is, of course, protesting these calls for rebates, but on what grounds can it protest? The industry surely cannot argue that it has a right to keep its money; it has already, in word and deed, repudiated the very idea of rights. Nor can it argue that keeping its money would be in “the public interest”; Waxman and company’s whole point is that it is in “the public interest” for the pharmaceutical companies to hand over the money to alleviate the high prices the public has paid for drugs. Having advocated the confiscation of Americans’ hard-earned wealth in the name of “the public good,” having accepted that standard as legitimate, the industry now must live or, more accurately, die by it.

Yes, if the proposed health insurance “reform” is enacted, drug companies will, at the expense of individual Americans and insurance companies, see a large influx of new customers and cash, just as they did when Medicare was expanded to include prescription drug coverage. But this will not be good for the industry.

Health care costs will rise—as they have in Massachusetts since a health insurance mandate was implemented there16—and as they must wherever and whenever the government mandates universal insurance coverage, acceptance of preexisting conditions, and the like. And when the costs rise, statists will argue—as they always have—that it is in “the public interest” to reduce costs for the insured, who find themselves paying higher premiums than anticipated; for taxpayers, who find themselves paying higher taxes to subsidize the insurance of the poor; and especially for the government, which, having expanded once again, will be spending more and faster than it can confiscate. And so, costs will be reduced—by means of price controls on the pharmaceutical industry.

Already, even though the new health-care “reform” has yet to be enacted, politicians are seeking to cut costs by cutting the pharmaceutical industry’s revenues. In August 2009, Speaker of the House Nancy Pelosi made clear that she does not intend to be bound by any deals made with the pharmaceutical lobby in the run-up to “universal health care.” In response to the industry’s proposed contribution of $80 billion in cost savings over ten years toward health-care reform, she said “We know we can squeeze more from the system. The minute the drug companies settled for $80 billion, we knew it was $160 billion.”17

By aiding and abetting the government in its violation of the rights of Americans, the pharmaceutical industry has been setting itself up to be plundered. Either people—and, by extension, businesses—have rights to act on their own judgment, to contract as they see fit, and to keep, use, and dispose of the products of their effort, or they do not. If they do, then the only proper purpose of government is to protect those rights by barring force and fraud from social relationships, and by using force only in retaliation against those who initiate its use. If people have rights to liberty and property, then the government is morally forbidden to interfere in any aspect of the health-care industry. If people do not have these rights, then looting is the proverbial name of the game; it is every man, industry, and government for itself; and the pharmaceutical industry, although a looter today, is sure to be looted tomorrow.

Seeking loot for itself, the pharmaceutical industry pragmatically advocated the rights-violating Medicare expansion and is now advocating rights-violating health insurance “reform.” In so doing, it has laid and continues to lay the groundwork for its own destruction. By aiding and abetting governmental violations of rights, the pharmaceutical industry is committing suicide.

Americans—especially those in the pharmaceutical industry—who want this industry to thrive rather than die, must condemn as immoral and impractical the efforts by industry leaders to acquire loot through government force. We must advocate—and demand that they advocate—the only kind of health-care reform that respects individual rights: a fully free market in medicine, health insurance, and health care in general.

Endnotes

1 Joseph R. Antos, “Medicare and the Prescription Drug Benefit: Increased Pressure for Reform,” http://hsgac.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=877dff99-6f2b-451e-89d0-27b715964a55. Accessed October 18, 2009.

2 Benjamin Zycher, “The Human Cost of Federal Price Negotiations: The Medicare Prescription Drug Benefit and Pharmaceutical Innovation,” Manhattan Medical Institute Medical Progress Report, no. 3, November 2006, http://www.manhattan-institute.org/html/mpr_03.htm/. Accessed October 18, 2009.

3 Alan F. Holmer, “Covering Prescription Drugs under Medicare: For the Good of the Patients,” Health Affairs, vol. 18, no. 4, July/August 1999, p. 23.

4 Alan F. Holmer, Statement before the Committee of Finance of the U.S. Senate, March 22, 2000, http://finance.senate.gov/3-22phrm.pdf. Accessed October 3, 2009.

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5 Cynthia M. Williams, “Using Medications Appropriately in Older Adults,” American Family Physician, vol. 66, no. 10, November 15, 2002, pp. 1917–24.

6 Dennis Cauchon, “Medicare Drug Plan Spending Drops $6B in 2008,” USA Today, October 31, 2008, http://www.usatoday.com/news/health/2008-10-30-medicare_N.htm. Accessed December 1, 2009.

7 Harry and Louise “Get the Job Done” television commercial, http://www.youtube.com/watch?v=fOr17a4ZOIU. Accessed October 4, 2009.

8 Billy Tauzin, “Health Care Reform: Saving Money Is Important, But So Is Saving Lives,” http://www.phrma.org/about_phrma/straight_talk_from_billy_tauzin/health_care_reform_-_saving_money_is_important,_but_so_is_saving_lives/. Accessed December 2, 2009.

9 Pharmaceutical Research and Manufacturers of America, “Platform for a Healthy America,” http://www.phrma.org/platform_for_a_healthy_america/. Accessed October 4, 2009.

10 Janet Adamy, “House Leaders Unveil Health Bill,” The Wall Street Journal, October 30, 2009, http://online.wsj.com/article/SB125682351602615905.html.

11 Industry leaders sometimes claim that what they want is “market-based policy approaches . . . that build on the current public-private mix of health insurance coverage” [Bristol-Myers Squibb statement on U.S. health-care reform, http://www.bms.com/responsibility/key_issues/Pages/healthcare_reform.aspx], but, in fact, the changes they advocate amount to a government takeover of medicine.

12 This scheme, if enacted, will also practically eliminate out-of-pocket payments for prescription drugs in America; almost all prescriptions will be “paid for” either by insurance companies or by the government. This is significant because, when people do not pay out of pocket for their prescriptions, they tend to be less concerned about the price of drugs; thus, they tend to purchase more and higher-priced drugs than they would if they were paying out of pocket. This too will result in huge increases in dubious revenues for the pharmaceutical industry.

13 Television commercial, http://www.phrma.org/files/Factory_Final%20-1_6_08.wmv. Accessed October 5, 2009.

14 Duff Wilson, “Waxman Takes on Drug Makers over Medicare,” New York Times, August 25, 2009, http://www.nytimes.com/2009/08/26/health/policy/26dual.html. Accessed October 3, 2009. Note that, when the MMA was signed into law, its language contained a “noninterference clause” that explicitly prohibited the federal government from intervening in drug price negotiations between pharmaceutical companies and Medicare drug coverage plans, which are administered by private contractors. Thus, Representative Waxman is attempting to retroactively change the terms of contracts made by the pharmaceutical industry. Source: Martin Sipkoff, “Lowering Part D Costs without Direct CMS Negotiations,” Managed Care, September 2009, http://www.managedcaremag.com/archives/0909/0909.medmgmt.html. Accessed October 4, 2009.

15 Alicia Mundy, “Drug Makers Face Tougher Measures,” Wall Street Journal, October 30, 2009, http://online.wsj.com/article/SB125685873503217267.html. Accessed October 31, 2009.

16 Paul Hsieh, “Mandatory Health Insurance: Wrong for Massachusetts, Wrong for America.” The Objective Standard, vol. 3, no. 3, Fall 2008. pp. 39–50.

17 David D. Kirkpatrick, “Democrats Say No to Cost Cap for Drug Makers,” New York Times, August 6, 2009, http://www.nytimes.com/2009/08/07/health/policy/07lobby.html?_r=1&ref=health. Accessed October 5, 2009. In fact, the health-care “reform” bill that passed the House in November 2009 includes cuts in payments to drug companies of an estimated $125 to $150 billion; Mrs. Pelosi got most of the “squeeze” she was looking for. See, Janet Adamy, “Parsing the House Health Bill,” Wall Street Journal, November 28, 2009, http://online.wsj.com/article/SB125763756556136303.html.

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