McNair’s tale is typical of the sad truths-and damaging publicity-about drug prices, which have become the focus of the first pitched battle in the health-care wars. Critics in Congress have been pounding the industry for years. But with a new administration committed to reform and less receptive to business advocates, the real fight has just begun. Last week featured the First Lady’s meetings with patients, doctors and pharmacists in Boston and the release of a new study by a congressional research unit, the Office of Technology Assessment (OTA). Citing the study, critics charged that the industry makes $2 billion a year in “excess” profits.
The government’s job is to get prices down without damaging an industry that generates profits and jobs. But the issue is emotional, full of big money and human suffering. And it is a vastly complex debate, in which figures easily lie.
The debate revolves around how drug companies spend money and set prices. Take advertising, for example. Companies say big ad budgets are necessary to explain fast-changing technology. “The more new products you have, the more you need to be sure doctors know about them,” says Bob Allnutt of the Pharmaceutical Manufacturers Association (PMA). But critics say that much of the advertising is simple promotion, pushing doctors to use one product over another. Research spending provokes a similar debate. The industry argues that it spends more on research than do most U.S. industries, and most of that on new products. But critics say that the industry spends too much money on “me too” products that don’t advance science.
The smoking gun, for some critics, is what drug makers charge outside the United States. Studies show that prices are much lower in Europe and Canada. The PMA complains that such studies don’t correctly translate currency exchange rates and that they compare apples with oranges, for example by comparing regulated prices in other countries with retail prices in the United States.
Examination of these issues reveals that drug companies aren’t the only culprits. Why, for example, don’t more doctors prescribe the cheaper generic drugs? Part of the answer is that drug makers do little to promote them; they don’t make as much money. But doctors are often too cautious, busy or oblivious to prescribe generics. After Boston City Hospital last year instituted guidelines for doctors to prescribe generics, the average cost of prescriptions dropped 50 percent.
The drug industry is particularly irritated by all this attention, because it has made some changes. Under government pressure, the 10 companies with 40 percent of the U.S. market agreed in 1990 to keep price increases in line with inflation. The trade group argues that this change isn’t reflected in the congressional report. But Jonathan Gelles, an analyst at Wertheim Schroder, says companies could cut prices more and still make a reasonable profit. The question, of course, is how much profit? While European governments will set limits when they deem profits to be too high, U.S. policymakers have hesitated to intervene in the markets.
Either way, change is coming. The new congressional report, says Rep. Henry Waxman, who commissioned it, proves that “competition simply doesn’t work in the market for prescription drugs.” Lawmakers will probably move to make the market work better by giving more purchasing power to patients. Under the health-care plan now being sculpted at the White House, national patient networks would negotiate to purchase drugs in huge volume, giving them the kind of discount prices that individual purchasers cannot get. But the government may also decide to override the market by imposing price controls.
Both sides in this debate are engaging in a little bluster, of course. But the drug companies can’t hold back the tide. With health-care costs threatening to swamp the economy, most players in this game will end up paying a higher price.
DRUG (COMPANY) CONDITION PERCENT INCREASE IN PRICE, 1987-92* Coumadin Heart disease 159.4% (Du Pont-Merck) Pamelor (Sandoz) Anxiety 139.2% Tenex (Wyeth) Hypertension 131.3% Ogen(Abbott) Estrogen therapy 131.2% Orudis (Wyeth) Arthritis 126.4% *PER 100 TABLETS WHOLESALE
