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Rage against the cure: the health hazards of pharmaceutical price controls

Rage against the cure: the health hazards of pharmaceutical price controls.

by Robert M. Goldberg

To learn more about the views of consumers around the nation, a major pharmaceutical firm recently organized a series of focus groups to discuss drug prices, medical innovation, and the value of medicine. But the discussions rarely progressed beyond one issue. As soon as the focus group leader put up a chart showing that drug costs account for only 8 percent of America's total healthcare spending, the protests began; the members of the group would refuse to accept that the figure was so small. It had to be more--25 or even 50 percent, argued the disbelievers. Eventually, the group would disperse, having only managed to underscore the consumers' general distrust of drug companies and the widespread belief that prescriptions cost too much.

The reactions of these focus groups are consistent with national polls showing strong public agreement with efforts to control pharmaceutical prices. Even if the Clinton health plan is defeated, price controls are so politically popular they could well be incorporated into other proposals. The support for controls is widespread both in the public and the Congress.

DRUGS, PARKING TICKETS, TAXES

Controlling drug prices makes sense to many Americans, who have weathered a decade of steady and hefty increases in the prices of prescriptions that far exceed the general rate of inflation. Everyone knows a story about high-cost drugs: the single mother paying $85 for antibiotics to cure her toddler's ear infection; the elderly couple being forced to choose between food and medicines; the prescription that costs half as much in Ciudad Juarez as across the border in El Paso.

Americans do not have much sympathy for drug companies, either, and Bill Clinton knows it. Pharmaceutical firms have netted huge profits in the last decade; much of the public thinks these profits have been at the expense of the poor and elderly. So the president is campaigning hard to retain price controls in his health plan, and takes every opportunity to state his case against the high costs of medicines. This is an especially potent argument to senior citizens, who buy more prescription medicines than any other group in America. In February, at a visit to a pharmacy in Greenville, Connecticut, the president let the local pharmacist do the talking for him. "People come in here and actually break down because they can't afford to buy prescriptions," said the pharmacy owner. Other customers, he said, had been forced to sell their homes and give up other necessities because of soaring drug costs.

The resentment against price hikes has been compounded by the peculiar way pharmaceuticals are treated by many insurance plans. That insurers will cover expensive visits to physicians or hospitals, but often will not cover prescriptions, is one of the great paradoxes of the current health system. Many people resent paying for drugs the same way they resent paying parking tickets or taxes. This resentment is likely to grow as new pharmaceuticals replace hospital stays and other treatments as the front-line defense for most diseases.

The solution to such problems, according to the president and other price-control supporters, is to set legal limits on the price of prescription drugs. Senator David Pryor (D-AK) and Representative Henry Waxman (D-CA), have introduced legislation in which the government would set--they use the word "negotiate"--drug prices the way it now sets utility rates.

THE COST FOR CURES

For all their popularity, however, price controls on pharmaceuticals are one of the most dangerous elements of the Clinton health plan. The potential for controls to jeopardize drug research--and future cures--is a major threat to American health. The short-term savings are not worth the eventual harm price controls will cause.

Drug costs are not driving Americans to the poor house. In fact, Americans spend less than $250 per capita annually on medicines. It is true that prices for some--and especially innovative--drugs are high, and that these prices create hardships for some people. But even extreme price controls would not make drugs affordable to people who pay thousands of dollars for medicines out of their own pockets; cutting current profits in half would cut prices about $6.00 per prescription at the check-out counter. As for turning the pharmaceutical industry into a public utility, the Soviet Union did just that. Pharmaceutical research, development, and availability virtually ended as a result. Medicines were, and remain, notoriously scarce and backward in the former Soviet bloc. So much for the public-utility model.

What the White House does not acknowledge in the debate on pharmaceutical prices is that today, higher-priced drugs can prolong or improve a patient's quality of life, allowing him to remain at work and with his family, instead of in a hospital or convalescing. Newer versions of existing drugs--such as Prozac for depression or Felbamate for epilepsy--reduce pain, limit side effects, and help patients in ways that earlier drugs could not. Breakthrough drugs such as Betaseron, the first drug to treat multiple sclerosis, will reduce the costs of treating diseases over the long run, even though they are more expensive than earlier-generation products.

WORTH EVERY PENNY

Today, pharmaceuticals are improving the delivery of health care and reducing the cost of treatment for many diseases. Drugs have reduced the death rate from arteriosclerosis, early childhood diseases, heart disease, ulcers, polio, and tuberculosis. The cost of maintaining a polio victim on an iron-lung machine today would run into the tens of thousands of dollars annually, while the common polio vaccine is now inexpensive. Treating typhoid with methods used before the discovery of antibiotics would cost approximately $100,000. New drugs also have made possible many life-saving procedures such as organ transplants, chemotherapy, and kidney dialysis.

The most innovative drugs of the late 1970s and 1980s had higher real prices than the earlier generations of drugs--and they were worth every penny. Such new products as Tagamet and Zantac for ulcers, Procardia and Capoten for hypertension, Mevacor for cholesterol, and Naprosyn for arthritis allowed physicians to actually control diseases that had led to fatal and crippling illnesses.

The White House's targeting of drug companies and biotechnology firms as among the villains in the health-care debate seems especially shortsighted, since the technologies these firms develop are among the best uses of medical resources. Dr. Lewis Thomas, the late essayist and president of Memorial Sloan-Kettering Cancer Center, once observed that pharmaceutical innovations are the most genuinely decisive technology of modem medicine. Pharmaceuticals are the product of a genuine understanding of disease mechanisms. There are few important human diseases that medicine has the outright capacity to prevent or cure in which the cost of treatment with drug therapy is as high as managing the same disease without the drugs.

THE DEMAND FOR BETTER MEDICINE

The administration's efforts to paint pharmaceutical companies as money-grubbing crooks have unfairly singled out the industry as a scapegoat. Drug companies, like other businesses, try to make as high a profit as they can. They can do so only when their research leads to drugs that doctors and patients want. Patients and insurance companies may not like an innovative drug's high price, but they pay it nonetheless when the drug is the best treatment or can prevent other costs associated with an illness or disease. If the demand for a particular drug is high, as it often is when a breakthrough comes onto the market, the price will be high. These prices reflect the demand for continuing innovation.

High prices also reflect the inherent risks of the pharmaceutical and biotechnology industries. The medical advancements they deliver are extremely difficult to generate: Only one out of 1,000 drugs in development ever makes it onto market and turns a profit.

The importance and challenge of innovative knowledge has been recognized by the long patent life--17 years--available to companies that invest in research and development. Patent protection has traditionally been strong in the United States, and is a principal reason for America's leadership role in biotechnology. The importance of patents to profitability and investment has not been lost on politicians. Senator Pryor and others have proposed a bill to reduce the patent life of products that exceed prices or price increases set by government agencies. This outright confiscation of intellectual property could cripple research and development (R&D) faster than price controls.

Price-control advocates stress the price system's excesses rather than its fundamental validity. With rare exceptions, drug prices have functioned to encourage and reward the development of and investment in innovative medicines. Low drug prices, on the other hand, encourage and reward the duplication of existing medicines--one reason so many companies are getting into the generic drug market.

BLOCKBUSTER FUNDING

Drug prices, like all others, are set by market forces, which explains why drug prices actually declined in real terms during the 1970s, a time of very few therapeutic advances. Consumers were simply unwilling to pay higher prices for products that did not significantly. advance medical knowledge, and doctors were unwilling to prescribe them. Drug companies must continually meet the demand for more advanced drugs to prosper; without truly innovative products, companies could not obtain real price increases. Pharmaceutical cash flow began to decline, and R&D spending as a percentage of sales declined from 13 percent in 1971 to 11 percent in 1980. As Duke University economists Henry Grabowski and John Vernon found, the average drug introduced between 1970 and 1974, "had an estimated present value significantly below its R&D investment" due to the decline in real drug prices.

Starting in the early 1980s, however, the discovery of blockbuster drugs funded a boom in pharmaceutical research. These drugs became blockbusters--billion-dollar-a-year sellers--because their real prices allowed recovery of R&D costs and strong cash flows. This in turn led to a surge in R&D spending, and brought U.S. drug research to its current place as the world leader in drug therapy. Between 1980 and 1992, R&D spending in the pharmaceutical field increased 500 percent, from $1.5 billion in 1980 to about $9.1 billion in 1992. And indeed, as the search for innovative drugs intensified, R&D expenditures, which had declined during the 1970s, surged from 11.7 percent of sales in 1980 to about 16 percent in 1992. The ability to obtain higher real prices for innovative products stimulated competition to develop the next generation of medicines.

Research and development investment since the 1980s has focused on finding more effective treatments and cures for such diseases as AIDS, cancer, Alzheimer's, mental illnesses, and rare genetic disorders. The rapid emergence of the biotechnology industry is a direct result of the future promise of high returns of developing such breakthroughs. Because the risks of R&D are high, pricing freedom is essential to encourage innovation.

FALSE COMPARISON

Critics of the American pharmaceutical industry point to price controls in Europe as a model for the United States drug market. Citing a recent General Accounting Office report that British drug prices were generally lower than those in the United States, Representative Henry Waxman stated, "Britain's experience with pharmaceutical price controls shows it is possible to have lower drug prices and a thriving researched-based pharmaceutical industry." President Clinton has made essentially the same statement about Germany's pharmaceutical firms.

The comparison of U.S. and European pharmaceutical technology is false, since U.S. dominance in pharmaceutical innovation is overwhelming. According to a study by Heinz Redwood of Britain's Adam Smith Institute, American firms have developed 114 world-class drugs--drugs that are sold in the seven largest world markets and are considered to be therapeutically innovative--between 1970 and 1992. British and German drug concerns have developed only 24 each. In fact, the United States has developed more of these drugs than the rest of the world combined.

As for innovation where it counts--biotechnology--the U.S. lead is insurmountable. Biotechnology provides a roadmap for reaching an understanding of the way diseases and biological mechanisms work at the molecular level. Such discoveries are leading to the development of new drugs that allow the treatment of major debilitating and fatal diseases far more effectively and at far less cost than the mostly palliative therapies used today. Technology continues to advance rapidly, and for the first time the potential to cure many grave illnesses is conceivable. The large untapped markets for such therapies and the hope they hold have attracted the best scientific talent and venture capital to biotech, creating a uniquely American industry.

There are some 1,300 biotechnology firms in the United States today, compared with only a handful abroad. American companies have discovered over 85 percent of the biotech products currently in clinical development. American firms hold a technological edge in every advanced form of biotech treatment, whether gene therapy, cell adhesion, or antisense therapy. Such research could provide cures to cancer, cystic fibrosis, and muscular dystrophy, as well as effective control over arthritis, stroke, Alzheimer's disease, and AIDS.

BRITISH RATIONS

The European drug industry is the best evidence that price controls stifle innovation. In Britain, controls on pharmaceutical prices have lead to an erosion in profits, reducing the industry's ability to invest in future drugs. The return on capital in the British pharmaceutical industry has declined from 27 percent in 1970 to 4.5 percent in 1991. As a result, British drug companies have only one of the top-ten best selling products worldwide--the ulcer medication Zantac--down from three in 1988. The United States has eight of the top-ten best sellers, including Capoten, Mevacor, and Ceclor. Given the poor profits in Europe, it is no surprise that the British have funnelled an increasingly bigger portion of their R&D budgets to their U.S. operations and into joint ventures with American biotech concerns. According to the Association of the British Pharmaceutical Industry (ABPI) British drug companies have shifted nearly $1 billion per year in R&D to their U.S. operations since 1980.

Supporters of controls contend that Europe gets a free ride from U.S. innovation because of Europe's lower drug prices. But the true result of price controls in Europe has been drug rationing. The British National Health Service has limits on drug spending that force doctors to ration breakthrough medicines. Only 1 percent of all epilepsy patients on the national health plan in Great Britain receive the newest and most effective anti-convulsants, despite the fact that the drugs reduce seizures and slow down the advance of Parkinson's disease. Similarly, only 1 percent of all cancer patients receive powerful anti-nausea and immunity-boosting drugs that reduce the side effects of chemotherapy. In the United States, the majority of high-dose chemotherapy patients receive these drugs.

GERMAN MEASLY

President Clinton's frequent references to the German drug industry should give America chills. Since 1993 in Germany, a government mandated 5-percent cut in drug prices, price "negotiations," and limits on the reimbursement of drug costs have led to a severe decline in domestic R&D investment. These regulations have caused over 125 German pharmaceutical firms to reduce R&D. Forty percent of these firms are cutting 10 to 30 percent of their R&D budgets and 22 percent are trimming R&D by one third or more. According to Bayer a.g. chairman Manfred Schneider, "The research-based pharmaceutical industry no longer has a future here."

Nor does the public's access to new drugs for that matter. The cuts in German drug spending have led doctors to prescribe cheaper, less effective drugs, with the obvious consequence. A recent study showed that the 25-percent decline in drug spending has resulted in a 10-percent increase in hospital admissions for patients with heart disease, cancer, Parkinson's, and ulcers. As a result of the increase in hospitalization, the German health-care system is spending as much on health care today as they did before they put price controls on pharmaceuticals.

KILLING INVESTMENT

In part because its price-control proposal is based on European systems, the Clinton administration is anxious to show that controls will not discourage investment in innovative research. Chris Jennings, the White House point man on pharmaceutical price controls, asserts that the administration is not convinced the industry has financing problems. He cites a study by Feinstein Partners, a Boston consulting firm, that says that biotech firms raised $2.9 billion in 1993, the largest amount ever.

In fact, biotechnology companies raised less money for R&D in 1993 than in previous years. About $700 million went to debt refinancing unrelated to R&D investment. More important, according to the biotechnology financial newsletter BioCentury, the cash raised per company was actually some $4 million less than in previous years. Much of the decline is due to the record $500 million worth of initial public stock offerings (IPOs) that were canceled in the wake of President Clinton's attack on drug prices in February 1993.

Some supporters of price controls, such as Senator Edward Kennedy (D-MA), have talked openly about imposing price controls on bigger companies while leaving smaller biotech concerns alone. Such divide-and-conquer proposals ignore the life-support role pharmaceutical firms play in sustaining biotechnology. The fact is, price controls on drug companies would cripple the biotech industry and innovation generally. A study conducted by the Institute for Biotechnology Information (IBI) found that most biotech firms reported 50 percent or more of their income from equity investments, technology agreements, joint ventures, and other alliances with pharmaceutical companies.

David Hale, CEO of Gensia, a San Diego biotech firm, observes that such agreements were "a key to our survival and future success ... and very important in helping Gensia complete a successful IPO." But instead of increasing their investment in biotechnology, many drug companies are reducing such alliances, and finding other ways to invest, such as investing in drug-benefit companies and buying up stakes in generic drug firms.

Companies are also reducing investment in joint ventures with the National Institutes of Health (NIH). Congress and the White House want NIH to strictly enforce a requirement that drugs developed jointly with private firms be subjected to a "reasonable" pricing negotiation. This insistence on price controls has "nearly ruined the system," in the words of Dr. Steven Paul, the former scientific director of the National Institute of Mental Health and a creator of the NIH technology-transfer program. The number of cooperative agreements has declined from 47 in 1992 to 26 in 1993.

STALLING BREAKTHROUGHS

The drop-off in biotechnology funding has forced companies to hold off clinical development of breakthrough drugs. Hence, for the first time since 1989, the number of biotechnology drugs in clinical trials has declined. The capital shortfall in biotechnology may be permanent if price controls are imposed, leading to further declines.

Because so many important drugs are being developed by small companies, the human cost of price controls on biotechnology could be high. According to the Biotechnology Industry survey, 80 biotech companies have scaled back research on cancer and AIDS because of funding limits. Viagene has canceled clinical trials of a drug that could help fight HIV. ImmuCell is delaying research on medicine to treat newborns suffering from fatal dehydration. Cytogen has stopped testing breast and lung cancer diagnostics as a result of funding problems. Other companies developing drugs for Parkinson's, lupus, arthritis, muscular dystrophy, and multiple sclerosis have blamed price controls for their financial woes. Karen Bernstein, the publisher of Biocentury, observes, "The impact of price controls on biotechnology and pharmaceutical investment would be devastating. Investors have infinite choices and would simply seek out higher returns elsewhere."

Larger biotech firms are not immune. Kirk Raab, Genentech's CEO, is more direct: "I don't think we would have developed Pulmozyme if the Clinton price controls had been imposed. If they are, we will be forced to eventually stop doing research on AIDS and cancer and more research on allergies." Genzyme's Henry Termeer asserts "If we had to raise $100 million for our development of gene therapy for cystic fibrosis today, we couldn't do it."

WHAT'S IT TO YOU?

Why should Americans care about saving biotech firms? Why should we worry about the health of the U.S. pharmaceutical industry? Because health-care costs will continue to climb without new drugs that can effectively treat, prevent, or cure the major diseases of our time. Today, the costs from major uncured diseases such as heart disease, stroke, cancer, Alzheimer's, and depression are nearly $400 billion annually, without regard to the human suffering these conditions impose. No health plan, regardless of who sponsors it, can prevent those costs. Ultimately, the best way to lower health-care costs is to discover ways to effectively treat or eradicate diseases. As the following examples suggest, price controls will stifle such innovation and stall the momentum gained against known killers.

AIDS The introduction of AZT and other anti-viral drugs has slowed the progression of HIV in those infected with the virus. In combination with drugs that prevent opportunistic infections associated with AIDS, pharmaceutical advances have increased the life expectancy of AIDS victims from four months to several years. In the process, new drugs have reduced the time AIDS patients spend in hospitalized and those associated costs. A recent breakthrough in research suggests that AZT may prevent the development of HIV in the fetuses of infected pregnant women.

Drugs currently in development hold the promise of "staving off the onset of full-blown AIDS for 10, 20, or 30 years, while we work on a cure," notes Dr. Anthony Fauci, director of the National Institute for Allergies and Infectious Diseases. According to Dr. Henry Chang, director of research for the Shared Medical Research Foundation, "Gene therapy holds real promise for arresting the progression of HIV."

CANCER Cancer is still one of America's great killers: Approximately 525,000 people die of different forms of cancer each year. But the ability to treat cancer effectively has accelerated rapidly in the last decade. Many cancers, such as advanced stage Hodgkins disease, acute lymphocytic leukemia, and hairy cell leukemia are now curable. New chemotherapy drugs have increased survival rates for breast cancer, testicular cancer, and--with the introduction of Taxol--ovarian cancer. According to a report by the National Pharmaceutical Council, such drugs reduce infections and hospital stays, saving between S7,000 and $12,000 per patient.

In addition to the advances in drug therapies, researchers have identified over 100 oncogenes that trigger tumor growth and 10 tumor suppressor genes. Gene Therapy, Inc. has made progress in curing brain cancer through the replacement of defective genes with genes that stop the production of cancerous cells. Other firms are developing drugs that block the DNA replication of defective genes.

ALZHEIMER'S DISEASE Nearly 4 million Americans 65 or older have Alzheimer's disease. With the baby boomers aging, 9 million cases are projected by 2040 if no cure is found. The cost of caring for someone with Alzheimer's is approximately $50,000 to $60,000 per year. Equally significant is the emotional and social strain incurred by patients and their families during the progression of the disease.

Until recently there was no treatment for Alzheimer's. But a drug approved in 1993, Warner-Lambert's Cognex, shows great promise. Cognex boosts the neurotransmitters and staves off the dementia, violent behavior, and incontinence associated with Alzheimer's for up to a year. Compared to the $60,000 annual bill to treat Alzheimer's, Cognex treatment costs only about $1,000 a year.

According to Dr. Frederick Goodwin, director of the National Institute for Mental Health, "It will be possible to control Alzheimer's like cholesterol by the end of the decade." Several companies are working on drugs that will inhibit the production of plaque that builds up in the brains of people with Alzheimer's. And some experiments show that certain heart medications can help reduce the buildup of protein deposits as well. Most recently, researchers at Duke University discovered that individuals with two copies of a gene for a protein called apolipoprotein (ApoE) are more likely to get late-onset Alzheimer's, the most common form of the disease. Several drug companies are now licensing the findings from Duke to develop a diagnostic test and new drugs based on the breakthrough.

MENTAL ILLNESS About 4 percent of Americans experience clinical depression during any six-month interval. Over half of the people with depression are unable to work; the annual economic and medical cost of depression in the United States is about $30 billion per year according to a recent study from the Massachusetts Institute of Technology (MIT). Worse, one in six patients ends his pain through suicide.

The introduction of Prozac and other anti-depressants that selectively regulate serotonin levels in the brain has made important strides in treating depression. Suicide rates among those treated for depression had been increasing before Prozac was approved by the Food and Drug Administration. Since the introduction of Prozac and other new antidepressants, suicide rates have declined. According to a study in the Journal of Clinical Psychiatry, successful treatment of depression with newer anti-depressants such as Prozac saves approximately $900 per patient in hospital costs annually.

One of the most heart-breaking and frustrating of all mental disorders is schizophrenia, a psychosis marked by withdrawal, bizarre and delusional behavior, and mental breakdown. Clozaril, a new drug for this treatment-resistant disorder, is proving effective in many patients, and actually allowing them to live normal lives. The drug also reduces hospitalization costs by about $33,000 per patient annually. New drugs that deal with other hard-to-treat mental disorders, such as some forms of manic depression and severe schizophrenia, are now in development.

CYSTIC FIBROSIS Cystic fibrosis (CF) is a genetic disease in which a faulty gene causes the lungs to secrete a thick mucus that congests the lungs. The congestion can cause persistent bacterial infection and permanent lung damage. Prior to 1980, most CF victims did not live into their teens. Today, due to antibiotics and enzymes that loosen the mucus, the average life span of a CF victim has increased to about 30 years.

Meanwhile, on the biotech front, the faulty gene that causes CF was discovered and isolated in 1989. Using that discovery, Genentech developed Pulmozyme, a protein that acts like "molecular scissors," cutting up the excess DNA in the thick mucus secretions. Continuous treatment with Pulmozyme costs about $10,000 a year, but using it improves breathing function and reduces the risk of the recurring lung infections that require hospitalization equal in cost to treatment with this new drug.

According to Dr. Robert Beall, director of the Cystic Fibrosis Foundation, "We are close to a cure for CF." The Genzyme Corporation successfully corrected the malfunctioning gene in an experiment last year and has expanded the clinical development of its cure. According to Dr. Beall, "Gene therapy will probably be no more expensive than the current annual cost of the halfway, and ultimately unsuccessful, method of treatment."

INFECTIOUS DISEASES Penicillin, once a wonder drug, has been eclipsed today by several generations of antibiotics. Penicillin successors such as tetracycline have given way to more recent treatments such as cephalexin, commonly known by its patent name Keflex. Today the newer cephalosporin and quinolones, which are effective against a wider spectrum of bacteria than older antibiotics, are reducing treatment failures and the need for additional care or hospitalization.

The rapid emergence of new and treatment-resistant bacterial and viral infections means that constant innovation in the antibiotic field is essential to stay ahead of infectious disease, and is important in saving money as well: Hospital stays due to infection cost more than $1.5 billion a year. These new drugs have also proved essential in successful organ transplants. New antibiotics prevent rejection of kidney transplants, saving dialysis costs of about $60,000 a year. Cyclosporines also prevent other types of transplant rejection and save about $180,000 per patient, compared to organ recipients not treated for post-operative infections with these advanced drugs.

Fungal infections, which are notoriously hard to identify and treat, are a huge problem among cancer and AIDS patients since their immune systems are depleted. But there are breakthroughs here too. A study in the New England Journal of Medicine found that only 1 out of 179 with fungal infections who were treated with the new drug fluconaasole died, compared with deaths of 10 of 177 patients who did not receive this new drug.

LOU GEHRIG'S DISEASE Breakthroughs are always on the horizon. Most recently a French company announced a new drug to slow the advance of amyotrophic lateral sclerosis, more commonly known as ALS or Lou Gehrig's disease. This degenerative disease attacks the nervous system and destroys muscle control, slowly wasting its victims. The disease has remained basically untreatable, and its victims' life expectancies have not lengthened significantly since the famous New York Yankee died of ALS in 1941. A number of companies, including the American-based firm Regeneron, are working on treatments that may provide the first therapeutic advances for this terrible disease. But when the treatments finally become available, they will no doubt be expensive. Should this stop the research?

DRUG BUREAUCRACY

The promise research holds for future cures is threatened by the Clinton plan at several levels. Drug research breakthroughs will be difficult to achieve with price controls in place. If the administration's proposal to control drug prices had a slogan, it would be "No good deed goes unpunished." Manipulation of pharmaceutical prices is one of the most coercive elements of the Clinton plan. Indeed, the price controls proposed by the White House would jeopardize the most innovative and therapeutically important products of the next decade.

First, the plan establishes an Advisory Council on Breakthrough Drugs to examine and determine whether the price of truly innovative drugs is reasonable. Drug companies, threatened with stiff fines, would be forced to provide all financial data demanded by the Department of Health and Human Services (HHS) for this purpose.

Second, HHS would have the authority to negotiate the launch price of new drugs. The negotiation process is exactly the same as that used in France, Germany, Italy, and Great Britain, except in one critical respect. The Clinton proposal goes one step further than European price controls: HHS would extract an additional 17 percent from the total dollar sales volume sold to Medicare patients. This 17 percent rebate is really a tax, and is the minimum HHS can impose, according to the proposed price regulations. High-priced drugs are subject to special rebates that may be higher.

Finally, HHS could deny reimbursement for drugs when a "reasonable" price and rebate is not accepted by a company, effectively blacklisting the drug. And companies that raised their prices above the rate of inflation would be required to rebate the difference to the government or be blacklisted.

According to Grabowski and Vernon, a 23 percent price cut on breakthrough drugs--nearly the same as the potential impact of a negotiated price and a flat 17 percent rebate--would reduce cash flow from sales by 60 percent. Such reductions could virtually halt drug research, since the profits from breakthrough drugs support the R&D of other, less profitable drugs as well as future innovations.

The Clinton plan will also limit the use of higher-price new drugs by empowering a National Quality Management Council to establish mandatory practice guidelines for the treatment of disease. For Medicare patients, the government would establish a list of preferred drugs for reimbursement. Such regulations would require doctors to obtain permission from the government or alliance bureaucrats before using drugs not recommended for reimbursement by HHS or the National Health Board. Similar, restrictive price formulas that limit reimbursements on innovative, higher-priced drugs have kept drugs of substantial therapeutic benefit from people for years in Europe, and are also found in the U.S. Medicaid program. Prozac, for example, is still not on the California Medicaid drug list for reimbursement despite its being more effective than older, less expensive anti-depressants. According to the New England journal of Medicine, cuts in Medicaid budgets for pharmaceuticals have lead to increases in the number of people hospitalized in New Hampshire.

THE HUMAN COSTS

Such drug rationing is happening in the private sector as well; many health maintenance organizations (HMOs) restrict innovative drug use. Kaiser Permanente excludes Cognex because it costs too much, ignoring the fact that not using it means quicker progression of Alzheimer's conditions that require home care or nursing home ca The Wall Street journal noted that the California state government wants HMOs providing health coverage to state employees to reduce spending by cutting prescription drug budgets. The possible target for cuts? "Costly new psychiatric drugs" that wreak "budget havoc." Despite evidence that new drugs like Clozapine, the break-through for schizophrenia, is giving people back their lives, and obviously their productivity, the HMO's plan to encourage the use of cheaper "alternatives."

Price controls carry a significant human cost. Because they ration or deny future cures, they are tantamount to withholding essential medicines to sick people who have no other hope. Indeed, the underlying ethic of medical progress--the absolute worth of a single human life--is at odds with the purpose of price of regulation. But in the moral calculus of the Clinton administration, medical progress is not an opportunity, it is simply an expensive obstacle to health-care reform.

This sentiment has been expressed implicitly when the debate turns to the terminally ill, who are almost always characterized by the administration as a "drain on health-care resources." In recent weeks, the impatience with life-saving investments has become more explicit. According to Biotech Daily, a senior White House official has advised Genzyme Corporation CEO Henry Termeer to refocus his company's research into "more broad research" and away from expensive treatments aimed at Gaucher's disease, cystic fibrosis, or other diseases that affect a small number of people. According to the article, "The administration does not want to have to deal with products such as Ceradase, Genzyme's effective, but expensive, treatment for Gaucher's disease, a relatively rare condition." So much for health care that is always there when you need it.

PREEMPTIVE EUTHANASIA

Lionel Trilling once wrote that "Some paradox of our nature leads us, when once we have made our fellow men the objects of our enlightened interest, to go on to make them the objects of our pity, then of our wisdom, ultimately of our coercion." The Clinton administration and its supporters insist that price controls on drugs are a moral imperative. They justify them by asserting that conquering health-care costs and profiteering is more important than conquering disease and improving the quality of life. And from this perspective, rationing future cures is simply part of the cost-containment effort initiated on behalf of the common good.

The White House is fed up with articles such as this one. The Clintons are indignant because they insist it is unfair to characterize their plan as including price controls. Perhaps in a semantic respect, the administration is correct. There is a more accurate description of what price controls could become: Preemptive euthanasia. We should not deceive ourselves that the deliberate and coercive elimination of future cures, given their potential and possibilities, would be anything less than that.

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