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Commentary: How to Even Out Drug Prices
An end to controls abroad would spread the cost of developing new drugs and protect U.S. consumers
As the election season heats up, campaign buses of some congressional candidates are shuttling elderly constituents into Canada and Mexico. The reason: To show voters that they can purchase vastly cheaper prescription drugs across the border because of price controls. Breast-cancer patients on one recent trip to Quebec found they could buy a month's supply of tamoxifen citrate for U.S. $13. The regular price back in Vermont? $156.
Outraged, legislators from Vermont's Bernard Sanders, a Socialist congressman, to Washington's Senator Slade Gorton, a conservative Republican, are pushing bills that would let U.S. consumers reimport U.S.-made drugs from Canada. U.S. drugmakers defend their high profit margins at home as necessary to underwrite research and development of new drugs. But the skewed economics of global drug pricing can't last. It's time for Washington to act.
No question, the U.S. drug industry is by far the world's most innovative, developing half of all new drugs. That's because "we still have a competitive marketplace with real market incentives," says a spokesman for the Pharmaceutical Research & Manufacturers of America (PhRMA). But lost in this emotional debate is a crucial fact: The U.S. is nearly alone among industrial nations in not imposing price controls on prescription medicines. As a result, the burden of funding R&D for drugs sold worldwide is falling disproportionately on two narrow bands of U.S. consumers: the chronically ill without health coverage and moderate-income elderly--about 12 million--who can't afford to supplement their Medicare with prescription-drug insurance.
Bulk purchasers, such as managed-care providers, the Pentagon, and Medicaid, can negotiate big discounts. But the uninsured often end up paying top dollar at retail. The burden is particularly severe on seniors, who purchase one-third of all prescription drugs.
Meanwhile, consumers in the rest of the world, sheltered by price controls, are enjoying the innovative drugs provided by the U.S. industry while shouldering far fewer costs. But the answer isn't U.S. price controls. The aim should be to spread the expense of developing new drugs, which the industry says can cost as much as $500 million each, more equitably among nations.
To help reduce the inequities, the U.S. government is cracking down on piracy, which PhRMA estimates costs its 80 member companies $5 billion a year. The biggest offenders: Argentina and India. They allow U.S. patent rip-offs by local drugmakers in order to supply cheap medicines at home and permit exports of pirated drugs. More effective, though, would be a U.S. push to ease price controls in other countries on the grounds that they are nontariff trade barriers. Even the World Trade Organization charter recognizes price controls' prejudicial impact on imports and urges countries to avoid them.
Neither the Clinton Administration nor PhRMA has pushed hard for such action. A possible reason for the industry's silence: The cost of producing one more pill is negligible once R&D costs have been underwritten by U.S. consumers. Thus, U.S. drug companies can still turn a profit on sales abroad.
Of course, patients in poor countries are even less able to afford costly drugs. A $10,000-a-year regimen of anti-AIDS drugs would be out of the reach of all but a few in sub-Saharan Africa, hard-hit by the epidemic. Sharing the burden around the world would mean that everyone pays something toward the development costs, but poorer countries' share could be subsidized by agencies such as the World Health Organization.
Yes, there's a danger that solutions could be worse than the problem if the result is falling R&D investment by drug companies. So far, election-year proposals range from the gimmicky--like those in Vermont and Maine for random, state-administered price controls--to the serious--prescription-drug coverage for the elderly through Medicare. Still, the White House and Congress are in a frame of mind to do something about the squeeze on elderly and chronically ill Americans. Pressure on the well-off countries of Europe and Asia to ease their controls should be a key part of the response.By Paul Magnusson; Magnusson Covers Trade from Washington.