The original problem was of course the lack of drug coverage under Medicare. Back in the early 1960s when Medicare was first designed and implemented it was modeled on what were then the not-for-profit Blues, which back then ran almost as state-based Utilities (they are mostly all now for-profit and swallowed up by the big private for profit insurance conglomerates). Hence the Part A for hospital reimbursement and Part B for physician reimbursement. Notice that insurance coverage for drugs was missing. This was they would not compete with private insurance, be considered "too socialized", and allow for supplemental insurance to be sold. Of course, back then there were not as many medicines available and they were less expensive. Fast forward, and we have more elderly of 65 with more chronic diseases and conditions and more medicines available to treat or at least (better for the drug company than cure) manage them. And they are expensive.

Part D was originally meant to provide a real drug benefit for persons under Medicare coverage. The U.S. government currently gets a discount for those drugs that covered under Medicaid (the federal-state program for the very poor), and even better discounts for the people covered under the Dept of Defense and other Uniform Services (Care at military hospitals and physicians, TriCare, etc), and for the Veterans Administration, and for a program called 340B. One idea was that people under Medicare should get those discounts, and that Medicare would pay most of all (with the tax dollar paying for the drugs under the better discount).

PhRMA did not like that. They wanted a higher rate, less discounting. They got it. And they and the government got the infamous donut hole where there is no drug benefit for 3.4 million people per year who are caught in between annual drug costs covered up to $2,200, but then with no coverage from $2,000 to $5,550 wherein they have to pay full cost out of pocket.

Remember: When they say that Medicare was not allowed to negotiate a lower price, this means they were not allowed to even get the same "discount" ("special, just for you") rate the U.S. government was already getting for benefits under Medicaid, DOD, Veterans and those eligible for 340B pricing.

One horrible, but deliberately planned result, is that many seniors and the disabled, who had been dually eligible for lower drug prices under Medicaid, wound up paying (either under Medicare or out-of-pocket) HIGHER prices to the drug companies under Medicare Part D, than they had before. Expensive for taxpayers, poor seniors and the disabled, but a windfall for the drug companies.

In one of the more blatant examples of the corrupt system, Tauzin was a leader in making Medicare Part D so bad for government, taxpayer and the elderly but so good for the drug industry, while he was at the same time secretly negotiating his near future job as chief lobbyist for the same industry. This was of course with the Bush white house and the corrupt D.C.-lobbyist leadership of the AARP (which is to a great extent a for-profit insurance company, and not a senior-rights organization).

As to the current deal between Baucus and Tauzin (can anything good possibly come from such dealmakers?), Dean Baker point out its limitations:

the projected $80 billion in savings in context. This is equal to a bit more than 2 percent of the $3.8 trillion that the Centers for Medicare and Medicaid Services project the country will spend on drugs over the next decade. The Post quotes its unnamed source as saying: "this is real money on the table." In the next paragraph the Post tells readers that "The concessions by drug manufacturers would essentially lower the cost of reform by a small fraction of the $1 trillion needed." That fraction would be 8 percent, assuming the commitment is met.

In fact what is actually being offered so far sounds pretty minimal and/or vague:

Under the proposal, U.S. drug companies would provide half-price discounts to Medicare recipients in the "doughnut hole" and provide other unspecified discounts and rebates for a total of $80 billion in savings to the government.

But more importantly this deal is a completely b.s. compromise, essentially a cave-in to PhRMA, compared to what had been talked about by the congressional Democrats and President Obama previously:

Complete elimination of the donut hole.

That under Medicare, drugs would not be paid more for than whatever was the cheapest that the government negotiated, including whatever was the cheapest for the Dept. of Defense, or the Veterans Administration or Medicaid or 340B. Those prices are typical one-half to one-fourth the cost of the same medications under Medicare. The official full price of drugs are completely artificial, and highly elastic to negotiation under a real free market. What we have had up until now are PhRMA lobbyists successfully fixing a higher price and preventing the government from acting as a free market consumer.

Indeed, unlike the Baucus-Tauzin deal which was unfortunately vaguely endorsed, the House leadership was standing a little bit stronger. In their draft proposal...

House Energy and Commerce Committee Chairman Henry A. Waxman (D-Calif.) singled out drug manufacturers, saying the legislation attempts to recoup the "windfall" that companies received when Congress created the Medicare prescription drug benefit, which took effect in 2006. As a result of that program, some patients who received deeply discounted medications through Medicaid moved to Medicare, which has generally paid higher drug prices. "We're simply going to ask the pharmaceutical companies to pay us back the money," Waxman said during a news conference.

Indeed, there is no reason for the U.S. to paying more for drugs, as we pathetically do, than the cheapest INTERNATIONAL market rates out there: American should not be paying any more for the same medications as whatever is the cheapest rate for the given medication in Canada, France, Germany, Japan, Taiwan, any other OECD country, to say nothing of our own Dept of Defense, Veterans Administration, 340B Drug program... or Wal-Mart, Target, and etc.

We already subsidize most of the underlying research (and the training of the drug companies' researchers) via the National Institutes of Health. When the same drug is offered to at a lower cost to purchaser -- be it at DOD or France or Canada, etc -- and at a higher cost to us, then we are suckers being asked to subsidize that too.

The Baucus-Tauzin "deal" is just an attempt to cut-off the debate and fast-track a great deal for PhRMA and a really bad deal for America.

Late updates:

AARP endorses:

http://www.washingtonpost.com/...

More details on lower costs in other countries

http://jwalkerreport.blogspot.com/...

some drugs cost 31 percent to 48 percent in Canada, France,Italy, Germany, etc.

http://wonkroom.thinkprogress.org/...