In June, Obama announced an agreement with the drug companies to cut the price of medicines by $80 billion over the next ten years. Now, $80 billion might sound like a huge amount of savings, but the bigger question is how much savings is this really?

So Greg Palast rummaged through the government health statistics, and discovered that spending on prescription drugs is projected to be $3.6 trillion dollars. In other words, $80 billion is only a 2% savings. Hmmm, doesn’t sound quite as good, does it?

But it gets worse. Much worse. First of all, this $80 billion “savings” is not on what we are currently paying for drugs, it is a savings over the amount the drug companies were planning on raising their prices. In plain English, the drug companies were planning on doubling the price of drugs over the next ten years, but now they will limit themselves to only raising prices 1.98 times. How absolutely generous.

What did big pharma get in return for this $80 billion pledge? Obama promised them that the government would not be allowed to bargain down drug prices, nor would the government be allowed to buy cheaper drugs from Canada.

Mind you, according to the New England Journal of Medicine, thirteen countries in Europe negotiate drug prices, and they are able to reduce the price of drugs between 35% to 55%. Even in the US, the Veterans Administration is allowed to negotiate the price of drugs, and they save 40%. (Medicare is not allowed to negotiate drug prices, a ban that Obama promised to overturn.)

Suddenly, $80 billion sounds quite small.

Incidentally, when I lived briefly in New Zealand I had to refill some prescriptions, and because I didn’t qualify for their national health plan I had to pay full price for them. I was shocked to find that full price there was less than my prescription co-pay for drugs in the US.

UPDATE: Obama Reverses Stand on Drug Industry Deal.