E-drug: Is drug price control coming to the US?
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New York Times, July 9, 2000
A Drug Plan Is Great, but Who Sets Prices?
By SHERYL GAY STOLBERG
WASHINGTON -- In this election season, helping the elderly pay for
their pills is a political no-brainer: everybody's for it. The fight
is over how to do it. Republicans, not surprisingly, want private
insurers to run any prescription drug benefits plan. Demcrats, not
surprisingly, want the government in control. But that classic
liberal-conservative clash masks the real issue: how much drugs will
cost, and who will set their prices.
Perhaps no issue touches as many lives as the cost of medication,
which is why it is consuming the political landscape this year. Last
week, Vice President Al Gore attacked drug manufacturers, accusing
them of price gouging. The week before, the House of Representatives
approved a
Republican-backed plan to give subsidies to insurance companies that
offer prescription coverage, a concept favored by the drug makers.
The furor is justified, economists and policymakers say. "It's
the part of the budget that is breaking the bank," said Dr. David A
Kessler, who ran the Food and Drug Administration before becoming
dean of the Yale University School of Medicine. "Ask any hospital
administrator, ask any H.M.O. Prescription drug prices is the one
sector that is out of control."
Prescription drugs are now the fastest-growing part of the nation's
health care bill. That is not so much because manufacturers are
raising prices for existing drugs, but because patients are switching
to newly approved medicines that cost more, and more prescriptions
are being written than ever before.
In 1998, according to the Kaiser Family Foundation, Americans spent
$91 billion on prescription drugs; the total is expected to reach
$243 billion in 2008. The elderly bear a disproportionate burden:
they account for 13 percent of the population but more than a third
of drug expenditures.
Yet any effort to bring down costs is fraught with unanswered
questions. To begin with, drug makers dance around the question of how
they set prices. The official explanation is that the cost of medicine
is justified by the high cost of research and development, which the
industry puts at $500 million per drug, a figure some say is inflated.
What's more, there is no one set price for drugs. Consumer advocates
often complain that Americans pay higher prices for their
prescriptions than patients anywhere else in the world. And that is
true -- if the patient pays the retail price, out of pocket. (That is
the case for
nearly one-third of the elderly, who have health insurance through
Medicare but lack drug coverage.)
But the truth is, few people buy retail in this business. Most have
insurance, and their health care providers typically negotiate
discounts with the drug manufacturers. The size of these discounts,
however, is a well-kept secret. The drug makers would like to keep it
that way, which is one reason they are working hard to defeat any
legislation that would put Medicare in charge of running a benefits
plan.
"They are totally paranoid about price controls, but I think the
thing that scares them more than anything is public disclosure of
what people actually pay for prescriptions," said Bruce C. Vladeck, a
former administrator of the Health Care Financing Administration,
which runs Medicare. "They go to enormous lengths not just to keep
that
information confidential, but to actually obscure it."
A government-run drug benefit plan would change that. If private
insurers offered drug benefits, the pharmaceutical industry could
continue to negotiate behind closed doors. But Medicare would
publish what it pays for drugs, and the private sector would
undoubtedly demand
similar discounts. And with every senior citizen in the nation
enrolled in the same Medicare drug plan, the government's bargaining
clout would increase exponentially.
"Medicare is the big gorilla," said Uwe Reinhardt, a health care
economist at Princeton University. "But there is another fear: If you
go to bed with a gorilla, and the gorilla shifts, you get squashed."
The shifting gorilla, of course, is Congress; the drug industry fears
lawmakers will agree to pay for a Medicare prescription drugs benefit
now, in times of surplus, and then cut back on reimbursements when
money grows scarce.
That is precisely what has happened with the 35-year-old Medicare
program itself. In its early years, said Drew Altman, president of
the Kaiser Family Foundation, Medicare became "the largest single
cash cow for doctors and hospitals around the country." But amid
concerns over rising health care costs in the 1990's, Medicare lowered
reimbursements, and now health providers are struggling.
Some experts, including Dr. Altman, argue that even with the
cutbacks, doctors are better off with Medicare than without it. Dr.
Reinhardt calculates the same would be true of the drug makers: a
Medicare benefits plan might bring lower prices, he says, but the
industry would make up the difference in volume. But Alan F.
Holmer, president of the Pharmaceutical Research and Manufacturers of
America, disagrees. The drug industry consistently ranks as the most
profitable on the list of Fortune 500 companies. Yet Mr. Holmer warns
that lower prices would "put biomedical innovation at risk" by
cutting into profits that the drug makers need to plow back into
research. "The industry could be profoundly different," said Mr.
Holmer, whose two children have cystic fibrosis and have benefited
from new treatments for that disease, he said. "One of the most
frightening things is that if we were to proceed down that path, we
would never really know which cure we were denied."
In one sense, Mr. Holmer's industry is a victim of its own success.
"We have the best medical armamentarium in the world," said
Dr.Kessler, the former F.D.A. commissioner. "But what good is it if
people can't afford it?" Because other countries have drug price
controls, the pharmaceutical industry earns most of its profits, and
conducts most of its basic research, in the United States. "We
Americans fund the bulk of the research for the rest of the world,"
Dr. Reinhardt said, "so everyone else can mooch."
And because prices are higher here, Americans use their prescription
drugs sparingly. Even so, drugs have become an essential part of
American medical care. "I have some patients that are choosing
between food and travel to see their children or grandchildren" or
taking pills, said Dr. Diane E. Meier, a geriatrician at Mount Sinai Medical
Center in New York City.
Many experts are doubtful that Congress will move on drug prices this
year. While the House Republican bill calls for private insurers to
offer drug benefits, the insurers themselves are against it; they say
that even with government subsidies, the plans would be too costly to
offer. At the same time, Republicans and Democrats may not be able
to bridge their ideological gap. In the meantime, says Dr. Vladeck,
the industry will continue to draw its line in the sand. "The United
States is their safety valve in terms of profits," he said. "I think
that adds intensity to their feelings about this. They are running
out of places where they can charge whatever they want."
--
Alan Cassels
Health policy consultant
Victoria, BC
cassels@canada.com
(250) 952-2951 tel
(250) 952-2790 fax
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