Sunday, October 03, 2004

Preview of Domestic Policy Issues:
Pharmaceutical Prices

The New England Journal of Medicine has published an opinion piece on the subject of prescription drug prices.  They kindly have made it available without subscription or registration. 

Election 2004

Volume 351:1375-1377 September 30, 2004 Number 14

Prescription-Drug Prices
Richard G. Frank, Ph.D.
In 2002, the United States spent $162.4 billion on prescription drugs. Government has traditionally played a smaller role in purchasing prescription drugs than in paying for health care services overall,1 accounting for 22 percent of prescription-drug spending as compared with 44 percent of all spending on personal health. The Medicare Modernization Act adds a prescription-drug benefit to the Medicare program, thereby reshaping the government's role as a payer for prescription drugs: the federal government's share of the country's prescription-drug spending can be expected to increase to between 30 and 40 percent during the first two years. The prices that the government pays for prescription drugs will be critically important. They will affect the cost of the new drug benefit, the financial stability of the Medicare program, and the incentives for prescription-drug manufacturers to develop new pharmaceutical agents. [..]

Richard Frank is a professor of Health Care Policy at Harvard Medical School.  His article is short and well-written.  In fact, I think it will be understandable to anyone who cares to read it.  It was written without bias, so I will take the liberty of providing the appropriate spin. 

The introduction of the article is quoted above; the rest of the article provides an overview of the major issues that have arising in the presidential campaign, regarding the prices of prescription drugs.  The main issues are: reimportation of prescription drugs, and direct governmental negotiation of drug prices; also discussed are the costs. risks, and benefits associated with reimportation and direct price negotiation. 

Dr. Frank points out that the main argument for reimportation is that it could lower costs to consumers.  The main arguments against it are: it might not lower costs very much, and there could be safety concerns.  Mr. Kerry is in favor of reimportation, but acknowledges that safety would have to be assured.  Mr. Bush is opposed to reimportation, citing a Congressional Budget Office report that concludes that price improvements are likely to be minimal.  Dr. Franks points out flaws in the CBO analysis, and concludes that modest price reductions are likely. 

The safety issue was mentioned by Mr. Bush's spokesperson, Mark McClellan:

Administration officials cite concerns about health and safety as justification for this reluctance to permit importation. Mark McClellan, the former commissioner of the Food and Drug Administration (FDA), observed that "there is no evidence that unapproved imported drugs are becoming safer or more reliable" and noted that "we are concerned with any measures that increase the flow of these unapproved drugs."

This appears to be a dumb thing for his to say, although perhaps it does not appear so inane if presented in full context.  He uses the word "unapproved" twice, which implies that there must be something wrong with them.  However, the lack of FDA approval does not mean that there is a problem; rather, it means that the FDA has not approved every aspect of the transportation and handling of the drugs.  These are real issues, but they are issues that can be addressed, and there is no reason to think that there is any intractable problem.  Stating that "there is no evidence that [they] are getting safer" implies that there is evidence that they are not safe.  In some cases, that is true.  In most cases, it is not.  Again, this is a problem that can be solved.

The issue of direct governmental negotiation for better prices is addressed next.  Mr. Bush opposes it; Mr. Kerry favors it.  The Bush opposition is based, in part, on the notion that "best health care system is that health care system generated in private markets."  This seems like a strange argument, since the Medicare Modernization Act prohibits direct price negotiation.  How is the prohibition of price negotiation consistent with the concept of a free market?  It is not.  Of course, Bush did not actually say "free market;" he said "private market."  What is the theory behind that?  The VA routinely negotiates prices that are 40% lower than those gotten by private insurance companies.  This would seem to prove that "private markets" do not always get the best prices. Mr. Bush also argues against price negotiation by saying that we need to be sure that drug companies have an incentive to develop new drugs.  If it were true that negotiation could not save much money, then there would be little to fear.  The incentive goes down only if significant cost savings result from the negotiations. 

In any case, the issue of reducing industry incentive is an important one, but Mr. Bush addresses only one side of the question.  If the incentives were reduced and the money just disappeared, that would be a problem.  But of course the money does not disappear; it gets spent somewhere else.  Republicans are fond of saying that taxpayers are the ones who know how best to spend their own money.  If that is true, why are we giving the money to drug companies?  If people want better drugs, they can donate the money to a foundation, such as the American Cancer Society. 

What Dr. Franks does not say, is that the pro-business stance of the Bush Administration is not really consistent with the purported values of the Republican Party.  It is more consistent with the values of someone who wants to curry favor with big business, and let the citizens suffer as a result.  Of course, the NEJM would not have published the article, if he had said that. 

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