Pharmaceutical Research and Manufacturers of America (PhRMA), the nation’s largest pharmaceutical lobbying group, is gearing up for a “multimillion-dollar public relations campaign to tout the importance of free-market health care and undercut an expected push by the Obama administration for price controls of prescription drugs,” the Washington Times reports.
During the campaign, executives and employees of the companies — wary of McCain’s legislative support for bringing low-cost generic drugs to market, letting consumers import cheaper medicines from Canada and opposing Medicare Part D — donated “three times as much” (approximately $1.6 million) to Obama as to McCain. Now, they’re seeking a return on their investment:
“We’re going to do an ad campaign that is designed to make people aware of the importance of preserving your free-market health care system,” Mr. Johnson [senior vice president with PhRMA]said. He added that PhRMA recognizes that “some reforms are needed in order to keep that system vibrant.”
But the reforms Obama proposes — allowing for the reimportation of safe drugs when prices are lower than in the U.S., enabling Medicare to directly negotiate drug prices, increasing the use of generic drugs in government programs and prohibiting large drug companies from keeping generic competition out of the market — will likely eat into Big Pharma’s profits. According to one study, giving Medicare the authority to negotiate drug prices, “would cause the pharmaceutical industry to lose $10 billion to $30 billion in annual revenues.”
Thus, the industry will no doubt argue that reduced profits will force companies to cut back on new medical research and slow down the discovery of new medical breakthroughs. They claim that we pay sky-high prices for their drugs because of ever-rising research and development costs. Yet according to a recent GAO report, big pharmaceutical companies are failing to deliver new and better drugs to the American people. While companies are spending more on Research and Development—147 percent more by the end of 2004 compared to 1993—by the end of 2004, the number of new drug applications were down 22 percent over 1999 levels, the most recent high watermark for new drug applications. In fact, their entire ‘higher prices for better drugs’ argument is highly problematic:
- The top U.S. drug makers spend 2.5 times as much on marketing and administration as they do on research.
- At least 1/3 of the drugs marketed by industry leaders were discovered by universities or small biotech companies and are sold to the public at inflated prices.
- 75 percent of new drugs approved by the FDA are me-too drugs that can be less effective than current drugs or no better than drugs already on the market to treat the same condition.
- With a blockbuster drug, it’s not unusual for a manufacturer to budget $50 million to $100 million for advertising aimed at consumers. (In 2000, Pfizer spent $89.5 million advertising Viagra to consumers.)
Moreover, because European countries “use their entire populations as a cohort — a large group of patients with a common need — to compel drug manufacturers to charge far less there than they do here,” drug companies are “forced to sell close to the margin elsewhere, [and] they make up the difference in the American market. According to a 2001 report by the House Committee on Government Reform, as a result of price controls in other countries, some drugs cost 31 percent to 48 percent less in Canada, France, Italy, Britain, Germany and Japan than in the United States.
The American system is a “funny mix of free enterprise and welfare.” The industry rallies against price controls and argues that patients must have “access to safe and effective medicines through a free market” but regularly licenses drugs from publically-funded institutions and small biotechs and insists that it be protected from foreign drug importation and market competition.
All too often, political leaders give in. The Medicare prescription drug benefit (Medicare Part D), for instance, prohibits Medicare from using its purchasing power obtain the best possible prices for prescription drugs and forces seniors to pay higher prices for their medication. Instead of relying on administrative efficiency of a single large purchaser, the drug program depends on thousands of stand-alone drug plans and health maintenance organizations to separately negotiate with each and every drug manufacturer, shattering the pricing clout that Medicare would have brought to bear on prices as the single largest prescription-drug purchaser in the United States.
Meanwhile, the one government agency that is empowered to negotiate directly with drug makers—the U.S. Department of Veteran Affairs—pays about 47 percent less than Medicare for frequently prescribed drugs.
The bottom line: Obama’s reforms are essential for lowering exploding medical costs. Allowing Medicare to negotiate with manufacturers for better prices on certain types of prescription drugs, implementing comparative effectiveness research to weed out duplications or unnecessary drugs, and increasing the use of generics are necessary steps to bring costs under control. Rather than relying on the private market practices that have brought us to where we are today — which is what Big Pharma will be advocating — we need an alternative approach.