Drug Makers Hand Democrats A Target on Prescription Bill
POLITICAL CAPITAL By ALAN MURRAY [WSJ]
WASHINGTON -- Once again, the pharmaceutical industry has overplayed its strong hand in Washington.
The Medicare prescription-drug bill moving through Congress includes language that explicitly prohibits the government from negotiating discounts directly with drug companies. That language is unnecessary. Both the Senate and the House structured their legislation to ensure that private-sector companies -- and not the federal government -- manage the new drug benefit. The superfluous provision was designed to give the drug companies some "extra protection." Instead, it has created a clear and easy target for opponents. Monday, one Democratic senator after another took shots at it. The provision was a payoff, they argued, for the tens of millions of dollars that the pharmaceutical industry has poured into Republican campaign coffers over the past decade.
In truth, allowing the federal government to negotiate drug prices is a bad idea for consumers. Why? Because the Medicare market is so large that the government wouldn't really be negotiating prices -- it would be setting them. And if history is any guide, price controls would ruin the pharmaceutical industry, which -- in spite of its ham-handed lobbying -- has done more to improve the lives of Americans than any other industry in modern history. That's why Democratic Sen. Ted Kennedy of Massachusetts, at least until Saturday, opposed price controls and supported a Medicare benefit administered by private companies.
But by waving a red flag in front of opponents, the industry and its allies may have hastened the day when price controls become inevitable. The Democrats have now zeroed in on this provision, and are very likely to campaign on it in the coming election, and make its repeal a cornerstone of their health-care plans. Even Sen. Kennedy appears to have switched sides. "The next bill is going to be federal bulk purchasing" of drugs, he said, menacingly, on Saturday.
At some point -- soon -- the pharmaceutical industry needs to wake up and smell the No-Doz. The rapid rise in spending on prescription drugs in this country is a big political problem that won't go away with this legislation. And the industry's argument that current high prices are necessary to pay for developing blockbuster drugs is full of holes. Studies have shown the industry spends as much on marketing as it does on research, and that some of the top-grossing drugs -- like Celebrex and Vioxx -- are often no more effective than low-cost generics. Moreover, the industry makes extraordinary profits, and it sells drugs to affluent consumers overseas at a fraction of the prices it charges here.
Contrary to the claims of critics, the Medicare prescription-drug bill, if enacted, will have some effect in holding down drug prices. The private companies that handle the new benefit should be able to get better discounts for seniors. But the benefit doesn't take effect until 2006; and even then, it's not likely to do enough. Congress should take action next year on legislation to create an effective marketplace for prescription drugs, and to control spending without ruining the industry.
Part of that legislation should be a concerted, public-private attack on price controls overseas. If other affluent nations aren't willing to pay their share of the costs of developing new drugs, they shouldn't get the benefits. "There is no reason," Sen. Kennedy said Saturday, "that the U.S. ought to subsidize the rest of the world on pricing."
In addition, it also ought to include federal funding for a new, independent agency to finance and analyze research on the cost effectiveness of new drugs. Right now, most drug research is financed by the industry, and is designed to determine only whether a drug is safe and effective. What's needed is more research to measure a new drug's cost effectiveness, as well as its effectiveness relative to other, lower-cost alternatives.
"Expensive new drugs should be tested against the best available generic," says economist Alain Enthoven, who has spent three decades advocating measures to inject real competition into health care. "Instead, they are now being tested against placebos." If the market is going to control prices, then those participating in the market need better information.
The Medicare bill has a little-noted provision that takes a step in this direction by providing $50 million to the Department of Health and Human Services for such research. That's a start. If the pharmaceutical industry gets smart, it will support further efforts to make the drug marketplace more efficient.
But if the industry continues to overplay its hand, then price controls are probably a political inevitability. "The day will come when Congress has to choose between raising taxes, cutting back on drug benefits for seniors, or hammering the drug companies," says Robert Reischauer, president of the Urban Institute. "Which will they do? The answer is easy: Hammer the drug companies. No amount of political power will stand in the way."
Write to Alan Murray at alan.murray@wsj.com
Updated November 25, 2003 12:26 a.m.
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