Editore"s Note
Tilting at Windmills

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January 21, 2005
By: Kevin Drum

BEST PRICING....Complaints that the federal government is too sluggish and bureaucratic are common. But complaints that the feds are too efficient and businesslike? You don't hear that one so often.

Today, though, a drug industry shill named Benjamin Zycher complains about exactly that. Government agencies like the VA aren't "negotiating" prices with pharmaceutical companies, he complains, they're just shaking them down:

What's actually happening is something that does not sound quite as appealing: price controls.

....The VA is entitled under the law to receive either the minimum 24% discounted price or the "best price," whichever is lower. These "best prices" are not just for the VA; many healthcare programs receiving federal funding also are entitled to them. That is how the federal government, state Medicaid programs and others receive the benefits of private-sector negotiations without actually having to undertake negotiations themselves.

And if drug companies refuse to play by these rules? They then would be precluded from selling any of their products to the VA....

Question: is this guy just lying through his teeth, or is he really this clueluess about how the business world works?

Standard discounts and "best price" contracts are both common. Almost routine, in face. When I worked in the software industry, pretty much every deal we did that was big enough to require a negotiated contract in the first place included language guaranteeing the purchaser the same price as our most preferred customer. And if we refused? Then we lost the deal. In other words, we were "precluded" from selling our products to them.

For a customer the size of the VA, there isn't a company in the world that wouldn't negotiate a very favorable price and unblinkingly agree to guarantee them "most favorable pricing." The VA is just negotiating the exact same kind of contract as practically every large commercial customer in the world.

So save your tears for Big Pharma. After all, you don't think Merck and Pfizer are foolish enough to sign contracts with their suppliers that don't guarantee themselves most favorable pricing, do you?

Kevin Drum 11:58 AM Permalink | Trackbacks

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