In Search of Fair Balance

8/14/2019 In Search of Fair Balance

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IN SEARCH OF FAIR BALANCE:Prejudiced Attacks on the Research Based Pharmaceutical

Industry Can Result in Dangerous Policies

January 8, 2001

E.M. Kolassa, Ph.D.Associate Professor, Pharmacy Administration

Associate Director, Center for Pharmaceutical Marketing and ManagementThe University of Mississippi

School of Pharmacy219B Faser Hall

University, MS 38655

(662) [email protected]

DISCLAIMER: The views and assertions contained in this document are those of theauthor, not those of the University of Mississippi or the School of Pharmacy


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In Search of Fair Balance

TABLE OF CONTENTSTABLE OF CONTENTS

Executive Summary................................................................... i

Introduction .............................................................................. 1

The Role of Medicines in Contemporary Medical Care 2

Problems Confronting the Pharmaceutical Industry................... 5

Pharmaceutical Prices................................................................ 7

International Price Differences ............................................ 8

The Link Between Profits and Research .................................. 12

Patents and Monopoly Power............................................... 15

Pharmaceutical Promotion....................................................... 18

Specific Responses to Flawed Analyses................................... 21


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In Search of Fair Balance

EXECUTIVE SUMMARY

The contributions of the US research-based pharmaceutical industry to our nations healthand economic prosperity are many, but misdirected attacks on the industry may threaten its

productivity, and slow or reverse the major advances in medical care, and the slowing ofmedical care spending, brought about by the pharmaceutical revolution of the past fewyears. The major findings, and assertions, of this report are:

Pharmaceutical prices reflect their value, which has been documented many times. The

current focus on pharmaceutical prices ignores the real issue the lack of appropriate

prescription drug insurance coverage for seniors and other underinsured Americans.

Reducing the prices of medicines would not solve the problems of those who truly cannotafford them, but would put at risk the availability of new medical innovations that would

benefit all, clinically and economically.

Profits reward and encourage risk, and the productivity of the US pharmaceutical industryis a testament to that relationship. If pharmaceutical firms earned profit margins that were

equal to the overall industrial average, as some have advocated, their degree of risk taking

would approach the average as well. The result would be what we have seen throughout

Europe, Canada, and in Japan, a pharmaceutical industry that takes fewer risks, discovers

fewer innovative medicines, and contributes less to society as a result.

The patent system in the US, and the exclusivity granted to innovative pharmaceuticalcompounds, is essential to provide the returns on research and development investments.

The nations health, both physical and economic, is enriched and improved because of

patent exclusivity and the financial rewards it provides.

The promotion of pharmaceutical is an important element of our health care system.

Without adequate promotional activities, society would be deprived of the benefits of most

new drugs for several years. The cost-effectiveness of pharmaceuticals, which reduce theneed for costlier medical interventions, is enhanced when promotion and other marketing

activities speed up the rate of their adoption into the medical care system.

The many proposals to reduce the prices of pharmaceuticals in the US are based on nave

and simplistic assumptions and, if implemented, would endanger the current productivity

and future viability of the research-based pharmaceutical industry in the United States.

Several proposals would put other sectors, such as retail pharmacy, at risk as well. Unlike

any other industry, the makers of pharmaceuticals have made efforts to assure that patients

will not be denied access to their products because of their financial situations. The failure

of insurers, and the federal government, to include the single most cost effective element of

medical care, pharmaceuticals, in basic medical care coverage plans points to their

narrow and short-sighted approaches to health care and their failure to stay current with

medical technology.


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IN SEARCH OF FAIR BALANCE:

Prejudiced Attacks on the Research Based Pharmaceutical IndustryCan Result in Dangerous Policies

I have yet to see any problem, however complicated, which, when you looked at

it the right way, did not become more complicated.

Poul Anderson

INTRODUCTION

The research based pharmaceutical industry in the United States finds itself literally underattack on several fronts. As the use of pharmaceuticals continues to increase, the scrutinyunder which the industry finds itself increases as well. New calls for price controls, pricereductions, importation of medicines from foreign markets and other solutions to thepharmaceutical problem arise on a regular basis. Although well intentioned, many, ifnot most of these calls to action are misguided and have the potential to do real harm, not

only to the pharmaceutical industry but also to patient health and the health care economy.

Over the past few months several analyses of the policies and activities of the researchbased pharmaceutical industry in the US have been published. These have ranged fromreports by the Secretary of Health and Human Services of the Federal government, whichsought to understand pharmaceutical pricing, to analyses prepared and circulated by wellmeaning but misinformed academicians who have attempted to scrutinize issues that arewell outside their own fields of expertise. These reports have been used to justifyproposed legislation, fuel campaign rhetoric, and vilify the pharmaceutical industry. Mostof these analyses lack balance; they were produced with a final solution in mind. Someare based on assumptions that are either na ve or disingenuous. Others, especially those

produced by the Department of Health and Human Services, have omitted information thathas been readily available, but would have affected their conclusions.

When pharmaceutical companies promote their products they are required to provide fairbalance, listing all possible negative consequences of using a medicine and offering proofof their claims, through the citation of clinical trial results published in peer-reviewedjournals and cleared by the FDA. Similarly, when academic researchers submit articles forpublication they are subjected to peer review to assure completeness, accuracy, andreliability of the work. No such burden is placed on those choosing to criticize thepharmaceutical industry in opens forums or in preparing documents for background use bylegislators or other public officials. In fact, a knowledgeable observer could conclude that

many of the reports purposefully omit important information and distort facts to maketheir points. This document has been prepared to provide some balance in the debate overthe value, prices, and future of pharmaceuticals within the US medical care system. It wasneither commissioned by nor prepared for any sponsor, but prepared solely to provide thebalance necessary for appropriate policy making.


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In Search of Fair BalanceE.M. Kolassa, Ph.D.

Center for Pharmaceutical Marketing and ManagementSchool of Pharmacy

The University of Mississippi

6

This shift in the medical paradigm, and societys failure to appreciate it, is at the root of theproblems facing the pharmaceutical industry. A recent analysis by researchers at theAmerican Enterprise Institute, entitled The Productivity of Health Care andPharmaceuticals: An International Comparison,1 found that the use of pharmaceuticalshas a positive and significant effect on life expectancy, and a negative effect on cost

while non-pharmaceutical health care consumption appears to have no measurableeffect. The other factors affecting life expectancy were either economic or life-styleelements. The authors of this study concluded that increased use of pharmaceuticals leadsto improved health and reductions in total spending on medical care. This alone provides acompelling argument that the increasing share of the health care dollar dedicated topharmaceuticals is not only appropriate but also desirable.

A recent study at Columbia University has found that a $1 expenditure onnewer medicines is associated with a $3.56 reduction in hospital costs.

A 1991 study by the Battelle Institute estimated that new products brought about by

pharmaceutical research pharmaceutical research will save more than $750 billion in thecost of treating just five illnesses over a 25 year period: Alzheimers, AIDS, cardiovasculardisease, arthritis, and cancer.2 Already, H2 antagonists such as Tagamet and proton pumpinhibitors like Prilosec have virtually eliminated the need for once common but costly anddangerous ulcer surgery, saving billions of dollars and thousands of lives. The main effectof many other medicines is to reduce or eliminate the need for more costly interventions,reducing both costs and human suffering.

More recently Frank R. Lichtenberg, a researcher at Columbia University, used the datafrom the 1996 Medical Expenditure Panel Survey (MEPS), which is collected andadministered by the federal government, to demonstrate that the use of newer drugs, when

compared with older drugs, results in lower total medical care spending and better patienthealth.3 Among the major findings of this study was that a $1 expenditure on newermedicines is associated with a $3.56 reduction in hospital costs, in addition to reductions inphysicians office visits, emergency room events, and other services. Lichtenberg alsoconcluded that these newer agents saved much more money than generic drugs, which aresimply copies of older drugs.

Pharmaceutical technology has been shown over and over again to result in lower totalhealth care costs and better patient outcomes. The failure to recognize this changed rolefor pharmaceuticals has led to the ongoing attempts to force pharmaceuticals and othermedical technology into the roles they played 30 to 50 years ago as minor elements of

1 Frech III HE, Miller RD. The Productivity and Health Care and Pharmaceuticals: An InternationalComparison, the AEI Press, Washington DC, 1999.

2 Brown RE, Elixhauser A, Scheingold S, Luce BR, The Value of Pharmaceuticals: An Assessment of FutureCosts for Selected Conditions, Battelle Medical Technology Assessment and Policy Research Center,Washington, DC, 1991

3 LichtenBerg, FR, The Benefits and Costs of Newer Drugs: Evidence from the 1996 Medical ExpenditurePanel Survey, Columbia Unversity and The National Bureau of Economic Research, November, 2000


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THE PROBLEMS CONFRONTING THE PHARMACEUTICAL INDUSTRY

The roots of many of the problems facing the pharmaceutical industry can be traced to itsunique position within medical care. Pharmaceuticals differ from most other inputs andresources within medical care because:

They are the products of for-profit businesses. Unlike other major aspects ofmedical care, medicines are produced by industrial concerns, rather than byindividuals (like physicians) or traditionally non-profit community-based concerns(like hospitals). The pharmaceutical industry is often viewed as one large unit,driven only by the profit motive, whereas most other aspects of medical care areoften seen as individual entities.

Medicines constitute a large portion of out of pocket costs for seniors. Patientsbear the costs of pharmaceuticals more than other aspects of health care becausemost other costs are covered through traditional insurance. Co-payments forprescriptions are often higher than those for physicians office visits, and they areusually paid monthly. For Medicare patients lacking additional insurance for

pharmaceuticals, the charges for prescriptions are usually the highest regularmedical expense to which they are exposed. Because these patients are responsiblefor covering the costs of prescriptions, but not physicians office visits or theirhospitalizations, they see drug costs as exceptionally high. The Medicare systembenefits when these patients take their prescriptions, but pays heavily when theydont. The lack of a Medicare drug benefit, not drug prices per se, has broughtabout the bulk of the protests over prescription costs.

They are easily separated from other parts of medical care . Physicians fees andhospital charges, which constitute the largest areas of medical care spending, arepaid for through major medical insurance, while pharmaceuticals are often carvedout and managed separately from other aspects of care. Because of this, those

charged with managing pharmaceutical costs focus only on those costs, ignoringthe benefits derived, in terms of reductions in surgical procedures and otherhospitalizations. The rewards from increased use of medicines are reaped in adifferent part of the budget, with few attempts to link the benefits of medication useto their own budget. Health systems managers pat themselves on the back forgetting hospital spending under control while complaining about increasedutilization of pharmaceuticals, which brought about the reduction inhospitalizations.

These conditions, which are unique to pharmaceuticals, render the research-based industrysusceptible to scrutiny and criticism at levels far beyond what their share of medical care

spending warrants. As the criticism of the pharmaceutical industry has increased, manywithin the medical care delivery system have rushed in to add to the faultfinding. Healthinsurers, criticized for the past decade, have joined the chorus of vitriol, perhaps seeking totake cover behind the pharmaceutical industry. In the November 20, 2000 issue ofNewsweek Magazine, Scott Serota, President and CEO of the Blue Cross and Blue ShieldAssociation, is pictured in a full page advertisement headlined Why are your prescriptiondrugs so expensive? The ad blames Direct-to-Consumer advertising, exclusive licensing


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agreements, and patent protection for high drug costs. Although these factors may,indeed, contribute to increased spending for pharmaceuticals, they also contribute to theunique outcome of pharmaceuticals: if it were not for modern medicines we would bespending more on medical care and patients would not be as healthy. Protestation ofincreasing drug utilization by insurers could be interpreted as an attempt to deflect

criticism away from themselves, not as problem solving. Medicines save money andimprove lives, something the health insurance industry should embrace, not work to limit.

Why, then, are pharmaceuticals surrounded by controversy, and why are so manycriticizing the industry and supporting proposals to cut their prices and profits? Many ofthe critics possess a na ve misunderstanding of the clinical and economic effects ofpharmaceuticals, choosing to find fault with the business of pharmaceutical rather thanseeking a better understanding of the issues. Such criticism is easy, well received by othercritics, and dangerous to the health of the nation.

Criticism of the pharmaceutical industry focuses on a few key issues:

The level of pharmaceutical prices The profitability of the industry

Market exclusivity granted by patents

Selection of products for development

Promotional practices

These areas interact; one cannot be evaluated fully without considering the others. Eachwill be addressed in the following sections.


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PHARMACEUTICAL PRICESIn December of 1999 President Clinton ordered the Department of Health and HumanServices (HHS) to undertake a study to determine how pharmaceutical prices weredetermined. After several months and what was purported to be an exhaustive review ofthe literature, the governments researchers were unable to answer the basic question but

they did find more evidence with which to pillory the pharmaceutical industry.4

Ratherthan seeking input from those involved in the field of pharmaceutical pricing, or evenconsulting the only book written on the topic,5 the authors of the report simply accused thepharmaceutical industry of unfair pricing.

..if the cost of using a product is lower than the cost of not using it, theprice is appropriate and the product delivers real value

The HHS report did point out that the bulk of the increase in spending on medications wasfrom increased utilization, rather than increased prices. It also pointed out that they did notknow how much of the difference in cost between older and newer drugs reflected changes

in the quality of the medicines that is if the higher prices reflected higher value. Asmentioned earlier, the study by Lichtenberg demonstrated that new drugs do, indeed, bringgreater value. And value is the starting point for the pricing of pharmaceuticals (andanything else, for that matter). The prices of new medicines reflect the value they bring tothe marketplace, relative to other drugs and interventions. In straightforward terms, if thecost of using a product is lower than the cost of not using it, the price is appropriate and theproduct delivers real value. Using the economic value of the drugs to assess their prices,one could argue that many, if not most, new drugs are actually underpriced, relative to thevalue they provide, in terms of reductions in the use of other medical interventions and theimprovements in patient health and quality of life.

Contrary to the beliefs of many, the cost of research, or anything else, is not directly used,and does not belong, in the pricing decision. Research is what pharmaceutical companiesdo, and profitable firms can conduct more research (this issue will be addressed in depthlater). We are indeed fortunate that the products of research-based pharmaceutical firmsare valuable, and provide the potential for the firms to be profitable and to continue todiscover, develop, and market new and more valuable medicines.

The prices charged for new medicines, although higher than those charged for oldermedicines, are low when compared with their improved value, as documented by theLichtenberg study. But the exclusion of pharmaceuticals from Medicare, as alreadydiscussed, means that patients over 65 must obtain additional insurance to obtain

medicines, or pay for them out of pocket, placing an undue, and unfair, burden on seniorsand others lacking comprehensive coverage. This situation, which brings many toconclude that drug prices are too high, is a result of an outdated Medicare system, not highdrug prices.

4 U.S. Department of Health and Human Services (2000), Report to the President: Prescription DrugCoverage, Spending, Utilization, and Prices, April. http://hhs.gov/health/reports/drugstudy/.

5 Kolassa EM, Elements of Pharmaceutical Pricing, Haworth Press, Binghampton, NY, 1997


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This link between pricing and research productivity can be seen in Chart 1, whichcompares price levels with research productivity. In this chart, other nations are comparedwith the US, their prices are presented as a percent of the list price for the same products inthe US, and the number of new drugs developed in those countries in the past five yearsare also presented as a percentage of US new drug discoveries. Note that nations with

lower prices are responsible for few of the new drugs discovered and developed.

CHART 1

Comparison of Price Levels with Research Productivity

0%

20%

40%

60%

80%

100%

120%

US Germany Sweden UK Canada Mexico France

Perc

entofUS

Price

Prices New Drugs

Sources: PhRMA Annual Survey, 1999, (New drug data) oCanadian Patent Medicine Price Review Board, Sept. 1998, (price data)

CURRENCY FLUCTUATIONSEven when firms attempt to set equal prices in all nations, the comparison soon changes to

favor non-US customers. The differences in prices between the US and other nations areexacerbated by the strength of the US economy and our currency. Over the past severalmonths every major news source has reported on the weakness of the Euro, the unifiedEuropean currency. Since its establishment in 1999 the Euro has lost roughly one third ofits value relative to the US Dollar. Because many European currencies are fixed againstthe Euro, the German Mark, French Franc, and Italian Lira, among others, have lost a thirdof their value as well. For pharmaceuticals, this means that a product priced the same inFrance, Germany, and the US in January of 1999 would now be approximately 35% moreexpensive in the US simply because of the strong Dollar. Price differences such as this aretotally out of the control of pharmaceutical industry. Since 1996, every major currency haslost value relative to the US Dollar. These devaluations in currency explain much of the

difference in international drug prices. Chart 2 shows that the majority of the pricedifferences are due to the strong US Dollar.

The differences in prices between the US and Canada are attributable more to their level ofgovernment control than to exchange rates. Canada uses a two level reference pricingsystem that compares the price submitted for approval by the company with prices chargedfor the same product in other countries, as well as prices charged for similar products in

rce: Data from Patent Medicine Price Review Board, Sept. 1998, p.14 and Dorlands Biomedical, 1998, p. I-109.


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spending. Repeating the mistakes of Canada would lead inevitably to a reduction in theimprovement of health and health economics, diverting money from the rest of theeconomy and into health care.

Americans do, in general, pay higher prices than do the governments of other nations, and

our own nation, for that matter. But the remedy to the perceived inequity is not to forceUS prices lower, it is to work to have our trading partners pay appropriate prices for thevalue they receive. Americans get fair value for their pharmaceutical dollar, those in othernations garner greater value because they refuse to pay fairly. Those nations do benefit,but not at our direct expense. If they paid fair prices those in the US would not be likely todecline, but the rate of discovery and development of even more new and valuablemedicines would certainly be increased.

Our imperfect market system brings forth valuable new drugs on a regular basis,contrasting sharply with the controlled markets that rely on drugs developed in the US anda few other markets to provide them with solutions to their health care problems. To forceour system to become as inefficient and economically inequitable as those in other nationswould be a dangerous precedent.

Pharmaceutical prices reflect their value, which has been documented many times. The

current focus on pharmaceutical prices ignores the real issue the lack of appropriate

prescription drug insurance coverage for seniors and other underinsured Americans.

Reducing the prices of medicines would not solve the problems of those who truly cannot

afford them, but would put at risk the availability of new medical innovations that would

benefit all, clinically and economically.


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THE LINK BETWEEN PROFITS AND RESEARCH

It is not from the benevolence of the butcher, the brewer, or the baker, that we

expect our dinner, but from their regard for their own interestNobody but a

beggar chooses to depend chiefly on the benevolence of his fellow citizens.

Adam Smith

Pharmaceutical companies work to produce innovative new therapies not only becausethey are necessary, but also because they are profitable. These innovative productsenhance the profitability of the firms, which allows them to conduct more, and more risky,research. Although the harshness of Adam Smiths admonition (above) must beinterpreted in the tone of its time, the basic argument, that the necessities of life areprovided by people for reasons other than pure charity, is fact. The amazing productivityof the US pharmaceutical industry is made possible because of its profitability.

The point is often made that pharmaceutical firms are among the most profitable

companies operating in the US economy, a point that is often used to support allegationsthat prices are too high. The most comprehensive analysis of the relationship betweenprofitability and R&D investment was conducted by the Office of Technology Assessmentof the US Congress, in 1993.9 The report that came out of this study: PharmaceuticalR&D: Costs, Risks, and Rewards sought to determine the true costs of research, theappropriateness of the profitability of the industry, and an assessment of the impact ofpublic policy on these parameters. The major findings of the study were:

The R&D process took on average 12 years from new drug discovery to marketintroduction.

The full after tax cost of R&D outlays, compounded to their value on the day ofmarket approval, was roughly $194 million (1990 dollars), although the authors

acknowledged that the costs at that time may have been as high as $359 million, tobring one new drug to market.

It is impossible to predict the cost of bringing a new drug to market today fromestimated costs for drugs whose development began more than a decade ago.

Dollar returns on R&D are volatile over time.

Economic returns to the pharmaceutical industry as a whole exceeded returns tocorporations in other industries by about 2 to 3 percentage points, after adjustingfor risk. This risk-adjusted difference is sufficient to induce substantial newinvestment in the pharmaceutical industry.

Over 80% of R&D spending by pharmaceutical companies is devoted todeveloping new products; the remainder is spent on discovering new uses for

current products.

The link between pharmaceutical company profitability and research and developmentcannot be overstated, they are two sides of the same coin. Pharmaceutical companies

9USSS Congress, Office of Technology Assessment, Pharmaceutical R&D: Costs, Risks, and Rewards,OTS-H-522 (Washington, DC, US Government Printing Office, February, 1993)


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spend, on average, roughly 20% of their sales revenue on research and development. Thiscontrasts sharply with the overall industrial average of less than 2%. This commitment toresearch yields benefits valuable new products and higher than average profits. Thehigher investment in research leads to a high level of profit, which provides the firms withthe ability to spend even more on research. This virtuous cycle was explored by Maven

Myers, Ph.D., in 1992 in an article The Interrelationship Between Pharmaceutical R&Dand Profit.10 In this study, Myers coined two phrases that are very useful inunderstanding not only the relationship of R&D to profit but the importantinterdependence. Myers termed the amount of research funding above the overallindustrial average excess R&D, and referred to the levels of profit above the industrialaverage as R&D profit. Among Myers major findings were:

The higher-than-average profits of pharmaceutical firms are a result of higher-than-average R&D investment.

The average return (for the companies studied) on excess R&D was roughly12%, compounded annually, when profits were calculated based on shareholderequity.

The way to maximize research spending (as opposed to maximizing the growth ofspending) is to increase the profitability of the firms.

As mentioned previously, in nations that have, through price controls, reduced theprofitability of their domestic pharmaceutical companies, the result has been a dramaticreduction in research productivity and innovation, leading to the destruction, or neardestruction, of their own pharmaceutical industry. Charts 3 and 4, below, provide vividevidence of this. These charts show the change that has occurred in the past decade as theUS has overtaken Europe as the dominant site of pharmaceutical R&D, and that US-basedpharmaceuticals firms have overtaken European firms in research productivity.

CHART 3Comparison of US and European R&D Expenditures

Source: EFPIA member associations, PhRMA, & Pharma Pricing and Reimbursement Review

10Myers MJ, The Interrelationship Between Pharmaceutical R&D and Profit, Journal of Research inPharmaceutical Economics, Vol. 4(2), 1992.

7,871

10,787

15,000

5,342

9,078

18,887

0

5,000

10,000

15,000

20,000

1990 1995 1999R&DSpending,in

Euros

Europe US


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As can be seen, the decade of the 1990s began with Europe accounting for nearly 50%more in R&D spending than the US, while the decade ending with the US accounting formore than 25% more research investment than in Europe. These figures include R&Dspending by US-based firms in Europe, under the European category, and European-basedfirms spending in the US. Note also that between 1995 and 1999, R&D spending in the

US doubled, while the growth rate in Europe was less than 50% during that same period.Obviously, the business and clinical environment in the US has become more appealingthat has the European environment, which is becoming more restrictive, and lessprofitable.

In terms of research productivity, that too now favors the US, as Chart 4 demonstrates.The number of US-sourced new medicines has increased by roughly 50% between the firstthree years of the 1990s and the final three, while those from European firms havedeclined.

CHART 4

The Origin of New Medicines and the Nationality of the Parent Company

Source: Pharma Pricing and Reimbursement Review, vol. 5, December 2000

Profits reward and encourage risk, and the productivity of the US pharmaceutical industry

is a testament to that relationship. If pharmaceutical firms earned profit margins that

were equal to the overall industrial average, as some have advocated, their degree of risk

taking would approach the average as well. Few industries are populated by firms that

routinely risk hundreds of millions of dollars knowing that the odds of any one project ever

reaching the market are less than 1 in 5,000, and that only one in three that ever reach the

market will earn back their investment. If prices were cut as dramatically as many call

for, the number of products that showed positive returns on their investment would go

down as well, reducing the funding available for research and development as well as theincentive to take high risks. The result would be what we have seen throughout Europe,

Canada, and in Japan, a pharmaceutical industry that takes fewer risks, discovers fewer

innovative medicines, and contributes less to society as a result.

52 5447

33 36

50

0

20

40

60

1991-93 1994-96 1997-99

Europe US


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PATENTS AND MONOPOLY POWER

the only incentive to produce anything is the possession of temporary monopoly

power - because without that power the price will be bid down to marginal cost and

the high initial fixed costs cannot be recouped. So the constant pursuit of that

monopoly power becomes the central driving thrust of the new economy .11

Lawrence Summers, US Secretary of the Treasury, July 2000

Critics of the research-based pharmaceutical industry often point to the patents grantednew drugs as a license for the companies to practice monopoly power. But without suchprotection there would be little incentive to take the financial risks inherent inpharmaceutical research and development. Without a high probability of recouping thecosts of research and earning a substantial profit, those who develop new technologieswould use their talents elsewhere.

THE PURPOSE OF A PATENT

Developed nations grant patents to the discoverers of new techniques, ideas, andinventions as a means of stimulating innovation, to advance the economic and intellectualwellbeing of the nation and its citizens. Nations with weak or unenforced patent laws, andthose that fail to assure adequate financial gains to patents holders, suffer from low levelsof innovation and poor economic performance. The principle intent of patents is toencourage innovation so the nation can enjoy its fruits. When forces, including regulatorydelays, infringe upon the period of exclusivity granted by patents, the result is to weakenthe incentive for innovation and risk taking.

Contrary to popular belief, it now takes the FDA longer toapprove a new drug than it did 10 years ago.

The patent for a new medicine begins when the drug is discovered, and the longer the timebetween discovery and approval for marketing, the less money the product will earn.Many claim that the FDA is now approving new drugs much more quickly than in previousyears but that statement is misleading. Although the FDA has shortened the periodbetween the submission of the New Drug Application (NDA) and final marketingapproval, the time between the submission of the research plan (IND) and the NDA, aperiod also substantially under the control of FDA, has increased by an amount greaterthan the approval time has shortened. The net result is that the total time for the approvalof new drug has increased by roughly 5 months while the FDA, and critics of thepharmaceutical industry, claim the opposite. Chart 5 provides the data that demonstrates

the actual lengthening of time for FDA approval for new drugs over the past 10 years.

11Lawrence Summers, "The New Wealth of Nations" Remarks by Treasury Secretary Lawrence H. SummersHambrecht & Quist Technology Conference San Francisco, CA,http://www.treas.gov/press/releases/ps617.htm


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CHART 5

Change in the Time Between First Clinical Testing and FDA Approval of New Drugs

Source: Congressional Budget Office

Longer useful commercial lives for products lead to higher levels of innovation. TheCanadian system was changed several years ago to require the licensing of generic rightsprior to patent expiration. That, coupled with the low prices forced by the government,

virtually eliminated Canadas domestic research-based pharmaceutical industry.

12

In thewake of these changes, the Canadian government voiced concern over their growing tradedeficit for pharmaceuticals. To address these concerns the consulting firm of PalmerDAngelo was contracted to determine the cause of the trade deficit and offer potentialsolutions. The ultimate report Canadas Balance of Trade in Pharmaceuticals, waspublished in February of 1997. The main finding was that Canadas trade deficit inpharmaceutical was directly linked to their patent laws, the deficit climbing when the lawswere weakened and slowing when they were strengthened. The report recommended thatthe Canadian government further strengthen patent laws to bring them in line with those oftheir major trading partners, to promote the growth of their own domestic pharmaceuticalindustry.

In Japan, frequent mandatory price decreases and short periods of exclusivity have causedthat countrys domestic pharmaceutical industry to adapt by developing few innovative

12 Thomas LG, Price Regulation, Industry Structure and Innovation, PharmacoEconomics,1 (suppl. 1) 9-12,1992

TOTAL FDA Approval Time

(3 year rolling average)

0.0

2.0

4.0

6.0

8.0

10.0

1989

1990

1991

1992

1993

1994

1995

Years

Clinical Testing NDA Approval


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compounds, choosing instead to focus on minor improvements of currently availablemedications.13 Long and viable commercial life is necessary for innovation to take place.

Once a drugs patent expires, other firms have the right to produce and sell generic copies.At that point most research-based firms will eliminate both the research and the promotion

done for the product. New discoveries about currently marketed products are madefrequently, and companies spend a large amount conducting research to gain approval fornew uses of a product, but only if they can be reasonably assured that the investment inthat research will be rewarded. Should there be insufficient patent life remaining, the firmwill not undertake the new research. Similarly, once the period of exclusivity has expired,firms will cease promoting the product to physicians. The cessation of promotion usuallyleads to a reduction in the use of the compound by clinicians. The relationship betweenpromotion and product use will be discussed in the following section.

The patent system in the US, and the exclusivity granted to innovative pharmaceutical

compounds, is essential to provide the returns on research and development investments.

The nations health, both physical and economic, is enriched and improved because of

patent exclusivity and the financial rewards it provides.

13 Hutin C, The Japanese New Drug Price Policy: A New Dynamic of Price Competition, The Journal ofResearch in Pharmaceutical Economics, Vol. 6 no. 2, 1995, 21-34


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PHARMACEUTICAL PROMOTION

Any solution to a problem changes the problem

R.W. Johnson

As noted throughout this document, the economic value of pharmaceuticals, realized

through the reductions in the use of other, more costly, medical interventions, issubstantial. The economic savings, and value, of pharmaceuticals extends beyond thehealth care budget as well. For example, in 1997, Berndt demonstrated that claimsprocessors who received drug treatment for either depression, anxiety, migraine, orhypertension were able to remain at work longer, and in the case of depression, migraineand hypertension, be more productive while on the job.14 Without appropriate andsignificant pharmaceutical marketing activities none of the savings could be realized. Thepurpose, and result, of pharmaceutical promotion is to enhance and accelerate the diffusionof new medications into the health care system. The vast majority of pharmaceuticalmarketing activities center on the provision of information to physicians and other healthcare professionals. Without significant promotion, most new medicines, or new uses for

medicines, would be unknown to many, of not the majority of, medical practitioners.

The profession of medicine is complex and very difficult, with increasing administrative aswell as professional demands on physicians. A medical practitioner, as would any otherindividual, will seek to simplify, or provide order to, such situations.15 Fennellt andWarnecke, in a detailed analysis of the diffusion of medical innovation noted that doctorsare very conservative in the area of treatment innovation;16 and assert that physicians arerelatively slow to adopt new approaches to therapy. Avorn notes that ..no mechanismsexist that require health care providers to remain at all current with the developments inpharmacology that have occurred since the completion of their training.17 Becausepractitioners, in general, do not readily seek out new therapies, and no mechanism exists to

direct them to accumulate new and developing information on pharmaceuticals, themarketing activities of firms is the only mechanism whereby the diffusion of informationconcerning new therapies can be assured. The complexities of medical practice combinedwith the inherent conservative nature of the practitioner and the lack of requirements toacquire new knowledge without some other stimulus would lead most physicians and otherproviders to focus on their immediate needs, seeking new information only when facedwith intractable problems and ignoring most lesser improvements.

Even when motivated to seek out information on new medicines on their own, mostmedical practitioners would be faced with an insurmountable task. Schwartzman estimated

14 Berndt E, Illness and Productivity: Objective Workplace Evidence, MIT Working Paper, May 199715 Payne JW, Bettman JR, Johnson EJ, The Adaptive Decision Maker Cambridge University Press,

Cambridge MA, 1993.16 Fennell ML, Warnecke RB, The Diffusion of Medical Innovation: An Applied Network Analysis, Plenum

Press, New York, 1988.17 Avorn J, Harvey K, Soumerai SB, Herxheimer A, Plumridge R, Bardelay G, Information and Education

as Determinants of Antibiotic Use: Report of Task Force 5. Research in Infectious Disease, 1987;9(3):S286-96


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that in any one year there are more than 1,700 articles published on each of the leading 25medicines in over 325 professional journals.18 No individual could be expected to staycurrent with the literature and update their knowledge of scientific advances and newinformation regarding the hundreds of medicines that are in common use. Pharmaceuticalmarketing helps to provide health care professionals with the most current information on

new medicines, new uses for older medicines, and newly discovered problems with orcautions concerning medicines. Because, as noted earlier, newer pharmaceutical productshave been shown to lower costs and result in improvements to patient health, whencompared with older medicines, activities that speed up the adoption of these newmedicines have the effect of saving even more and improving the lives of more people

The marketing of pharmaceuticals, unlike many other products, is strictly regulated andsubject to oversight. Materials presented must exhibit fair balance and completeinformation, and promotional programs aimed at encouraging the use of medicines forspecific diseases must be consistent with the approved labeling of the product firms arenot free to promote their medicines simply as they see fit, but must comply with FDAregulations. Moreover, because pharmaceutical markets are quite competitive19,20, thepromotional message of one firm must compete with, and respond to, the messages offirms providing similar products. Finally, contrary to the unspoken but implied view ofmany critics, physicians do not simply absorb promotional messages and comply withsales representatives suggestions, research demonstrates that physicians require thevalidation of new products by trusted experts before they themselves adopt a newmedicine.21 The combination of regulatory oversight, competition in the marketplace, andthe standards physicians rely upon for adopting new products result in a system wherebyinnovation is diffused quickly and safely into the health care system.

Those who criticize pharmaceutical promotion and suggest it be curtailed, it can beassumed, view it as both wasteful and coercive. If promotional activities did not provide areturn on their costs, however, companies would not engage in them. The argument thatpromotional spending drives prices higher, as a means of financing the spending, has neverbeen demonstrated in objective studies. Many have, in fact, concluded that products thatare promoted heavily have lower prices than those not promoted. As to the view ofpharmaceutical promotional activities as coercive, to hold this opinion requires thesimultaneous view that physicians, who are among the most highly educated and skepticalmembers of our society, are incapable of resisting (or even evaluating) the messages of thepharmaceutical sales representative.

The marketers of prescription medications are spending more time, effort, and money inreaching consumers with their promotional activities. Together with this new emphasis on

18Schwartzman D, Innovation in the Pharmaceutical Industry, Baltimore, Johns Hopkins University Press, 1976.

19Kolassa EM, Growing Competition in the Pharmaceutical Industry: A Response to the PRIME InstituteReport - an academic critique of the PRIME Institute Report, "Competition and Pricing Issues in thePharmaceutical Market", University of Mississippi Research Institute of Pharmaceutical Sciences, 1995

20The Boston Consulting Group, The Changing Environment for US Pharmaceutical, New York, 1993

21Davies DA, Foz RD, editors, The Physician as Learner: Linking Research to Practice, American MedicalAssociation, Chicago IL, 1994. Page 38


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consumer promotion has come new criticisms of the industry and its activities. Criticismhas emerged from sources as varied as the American Medical Association, members ofCongress, the lay press, and so-called public-interest groups. These critics have tendedto focus on the perception of promotion as manipulative and solely a profit-seekingendeavor, without considering the potential social good of informing consumers about

medications and the disorders they treat, as well as other potential societal benefits ofinformed consumers.

A recent article on the value of health care by Buck and colleagues argues strongly thatinformed consumers are the foundation of a well functioning market economy. They state:The functioning of a market economy requires that citizens be reasonably well informedabout the goods that they wish to consume.22 Stigler, in a classic treatise on the value ofinformation, asserted Advertising is, among other things, a method of providing potentialbuyers with knowledge of the identity of sellers. It is clearly an immensely powerfulinstrument for the elimination of ignorance.23

Many of the same people who criticize direct to consumer advertising argue for the so-called patients bill of rights. But the patients right to be knowledgeable about his orher disease and available treatments is a fundamental requirement of an informed andresponsible patient. In 1962, President John F. Kennedy proclaimed a Consumers Bill ofRights, arguing that every consumer had:

The right to be informed

The right to choose

The right to be heard

The right to safety

One of the ways in which a patient, or consumer, can become informed, form questions,

and make rational choices begins with direct-to-consumer (DTC) advertising. By lettingconsumers know about choices, directing them to information sources, and providing themwith the background to ask questions about their care, DTC helps fulfill three of the rightslaid out by President Kennedy.

The promotion of pharmaceutical is an important element of our health care system.

Without adequate promotional activities, society would be deprived of the benefits of most

new drugs for several years. The cost-effectiveness of pharmaceuticals, which reduce the

need for costlier medical interventions, is enhanced when promotion and other marketing

activities speed up the rate of their adoption into the medical care system.

22Buck D, Eastwood A, Smith PC, Can We Measure the Social Importance of Health Care? InternationalJournal of Technology Assessment in Health Care, 15:1 (1999) 89-107

23Stigler, G. T., the Economics of Information, Journal of Political Economics, Vol. 69, pp. 213-225, 1961


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SPECIFIC RESPONSES TO FLAWED ANALYSES

In this age, which believes that there is a shortcut to everything, the greatest

lesson to be learned is that the most difficult way is, in the long run, the easiest.

Henry Miller

Many of the recent calls for pharmaceutical price reductions are based on flawed,simplistic analyses and assumptions. Through the presentation of skewed data, and usingunsupported assumptions and simplistic calculations, advocates of simple price reductionsfor pharmaceuticals have built their cases. Such reports make for great news stories, forthey are designed with soundbites in mind. Some have claimed that widespread andmassive price reductions would have little impact on pharmaceutical company profitabilityand research productivity, others have not addressed these issues but assumed thatimplementing selective regional price cuts are simply a matter of ordering the cuts throughgovernment actions. Thomas Jefferson said, Good men with the same facts are prone todisagree. This may be true, but when equipped with different facts, or assumptions, the

parties are guaranteed to disagree. In keeping with the intent of this report, to provide fairbalance, it is essential to add some new, or overlooked, facts to the debate overpharmaceutical prices. The financial and logistical assumptions (or lack thereof) of recentreports and initiatives are addressed in this section.

THE IMPACT OF PRICE CUTS ON THE FINANCIAL AND RESARCH

PERFORMANCE OF THE PHARMACEUTICAL INDUSTRY

A recent report that calls for price cuts for states in the Northeast, by Dr. Alan Sager andDeborah Socolar of Boston University, is among the most dangerous and na ve, because itis presented as scholarly work when, in fact, it is not. Although filled with charts andfootnotes, the report itself is based on na ve assumptions, flawed and simplistic analyses,

and the omission of important facts. These are, admittedly, harsh words, but theconsequences of allowing documents such as Dr. Sagers to set a legislative agenda thatcould result in the loss of thousands of jobs and unnecessarily delay the discovery manynew medicines for years are too great to allow that work to go unchallenged. Many of theassertions and statements made in that report are ripe for rebuttal, and can easily beexposed as na ve and lacking factual support. The most dangerous, and erroneous,however, is the simple premise that massive price cuts would have no undue effect on thefinancial performance and viability of the pharmaceutical industry. If those seeking toimpose severe price cuts on the pharmaceutical industry did so under the false assumptionthat the pharmaceutical industry, and research productivity, would not be harmed, theywould be doing themselves and society a great disservice.

Dr. Sager, Professor of Health Services at Boston University published, in August 2000, areport entitled: Cutting Prescription Drug Spending by Paying Federal Supply SchedulePrices. In this document, it is claimed that the cutting of prescription prices by over 40%would not result in any decline in pharmaceutical industry sales or earnings, and thuswould have no negative effect on pharmaceutical research and development. Citingdisparate studies, articles, personal conversation, and his own letters to the editor of the


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Boston Globe as his sources, Dr. Sager makes a series of sweeping assertions withoutperforming the necessary calculations to support his conclusions.

In the summary of that report, Dr. Sager claims that ..the volume of prescriptions filledwould rise as prices fell because more people would be able to afford to fill their

prescriptions, offsetting much of the revenue lost at first. In the body of the report hegoes on to suggest that the added sales volume may even result in an increase in profits.To support this argument Dr. Sager cites 2 British studies and one US study that found theelasticity of demand for prescription drugs to be between 0.10 and 0.64, which means aprice reduction of 10% would result in an increase in unit sales of between 1% and 6.4%,which would fall far short of generating enough additional sales to offset such a price cut.He then cites a Merrill Lynch report to suggests that elasticity may be as great as 1.125,which means a 10% price decrease would result in an 11.25% increase in unit sales, andrests on this assumption to build his case. The assumption by Merrill Lynch, and adoptedby Dr. Sager, is that the actual elasticity of the market is nearly twice the level evermeasured in an actual study.

Sager also argues that manufacturing costs for pharmaceuticals are equal to only 5% of theselling price, but the only cost figure for which he provides documentation is one of 34%,which he dismisses as being inflated by fixed costs.

Dr. Sagers calculations require the assumption that those currentlylacking insurance coverage for prescription medicines would spend twiceas many dollars on them if the prices were lowered.

These 2 points, the assumption of elasticity of 1.125 and a cost of goods of only 5%, arethe basis for Sagers conclusion that a government mandated price reduction of over 40%would do no harm to either profits or R&D. But approximately 85% of prescriptions arepaid for through some form of third party insurance, and a price reduction would beunlikely to have any appreciable effect on the use of prescriptions for that portion of themarket, because consumers would not be the direct beneficiaries of the lower prices andthus would not be likely to increase their consumption of medicines. It would require thecurrently uninsured and underinsured population to quadruple their current intake ofmedicines for the price cut and resulting increase in use to generate the 45% increaseassumed by Sager (40% x 1.125). This also would require those same patients to morethan double their current cash outlays for pharmaceuticals, a very unlikely scenario.

As far-fetched as the preceding requirements are, let us assume that such a unit salesincrease would result from a 40% price cut. Using the 5% cost of goods assumption(which will be debunked shortly) this means that 95% of current sales revenue representsgross profit (which does not account for other operating expenses, only manufacturing theproduct), and a 40% price cut would reduce per unit gross profit to the equivalent of 55%of current revenue (95% - 40%). To earn the same amount of profit at the new, lower,

prices and margins, unit sales would need to increase by over 70% (95% 55%) for thenew price to be equally profitable. The 45% unit increase, even if it were attainable, would


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result in a reduction in gross profit of over 20%, an amount nearly equal to the researchand development spending of pharmaceutical companies, not the equivalence Dr. Sagerassumes.

But the assumption that the cost of manufacturing pharmaceutical is only 5% of the selling

price is insupportable. Dr. Sager cites a figure of 35% in his report, but dismisses most ofit as allocations of fixed costs. Although the inclusion of fixed costs is a valid concern,one must realize that, unless all pharmaceutical manufacturing facilities are operating atless than 66% of their capacity, an increase in unit sales (and production) of 45% wouldrequire the building of new plants and the expansion of other capabilities, which wouldrequire the firms to incur incremental fixed costs.

Even discounting the 34% cost of goods figure to 25% and thus allowing for new fixedcosts, at this level of cost of goods the result of a 40% price cut and a 45% unit increasewould be devastating to US based pharmaceutical firms. In such a case, gross profit wouldbe equal to 75% of current selling prices, and a 40% price reduction would reduce thatfigure to 35% of current prices. With this cost estimate it would require that unit sales

more than double (215% of current sales or 75% 35%) to generate a similar level ofgross profit. The 45% increase assumed by Dr. Sager would result in a reduction of grossprofits of over 33%. Under such a situation, jobs would be cut, research would besuspended, and many potential products would not find their way to the market soon.

Dr. Sagers assertions do not hold up under scrutiny, and his conclusions andrecommendations, in the report of August 5th 2000, should be disregarded.

REGIONAL PRICE CUTS

Several States in the Northeast have recently called for legislative or other regulatorymeans to force pharmaceutical companies to offer reduced prices to their citizens. Thecalls range from demanding prices equal to those offered in the Federal Supply Schedule toattempts to enroll all of their uninsured citizens into a program that would provide themwith Medicaid-type discounts. Although a Federal court has determined that the way inwhich the State of Maine first attempted to lower prices was not consistent with the law,Maine and other States will, in all likelihood, continue in their efforts to lower the prices ofprescription drugs.

The problems with regional efforts begin with the logistics of any of the remediesproposed so far. Although legislators may desire to lower prices for all of the voters, theimplementation of any such plan would be impeded by the lack of infrastructure.

These plans have all called for the selective discounting of prices to certain citizens,particularly those lacking prescription drug insurance coverage. But reducing prices tothese individuals requires more than simply ordering it. Every current discount system hassome infrastructural support, either governmental or private, and none of these systems canbe used for the price cut schemes envisioned by the activists in the North East.


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Discounts on prescription medications are provided to several different governmentprograms. One or more laws mandate the minimum discount for each of these. TheOmnibus Budget Reconciliation Act of 1990 (OBBRA 90) required pharmaceuticalmanufacturers to provide Medicaid, the joint State/Federal program for the indigent, with a

minimum discount of roughly 15% off the average price or equal to the lowest pricecharged to any non-government customer, whichever is lower. Companies have no choicein whether to offer this discount - it is mandatory. The Federal Supply Schedule, asdiscussed earlier, also has mandatory minimum discount levels (approximately 24%),required by the Veterans Health Act of 1992.

Medicaid patients are enrolled in the program, which the State government administers.The State reimburses retail pharmacies for their cost, plus a fee, and submitsdocumentation to each pharmaceutical company to receive its discounts via a rebatemechanism. In this way, only those products that were legitimately sold to Medicaidpatients will be subject to the rebate.

The Federal Supply Schedule (FSS) reflects prices paid by the federal government forproducts that are purchased for use within the federal health care system, particularlyDepartment of Veterans Affairs hospitals. In this case, the government purchases theproducts directly from the companies.

The various calls to offer either Medicaid or FSS prices to those outside of the systemsignore the need to have patients registered within the system and for the State, in the caseof Medicaid, to reimburse pharmacies and in turn be reimbursed, through the rebates. Foruninsured citizens of Vermont or Maine to have access to these prices would require thatthey be registered within the Medicaid program and that the State pay retail pharmaciststhe full price for the medications, and then seek an additional rebates for those non-Medicaid patients from the companies and, presumably, the patients themselves becausethey would be responsible for the remainder of the cost. This would necessitate theappropriation of sufficient funds to cover the drug and resources needed to administer theprogram.

The only other way in which such a mandated regional price cut could be implementedwould be to require retail pharmacists to sell prescriptions to the uninsured at prices farbelow their own cost, then seek reimbursement from the individual pharmaceuticalcompanies, who would require proof that the prescription was actually dispensed to anuninsured patient. The retail pharmacist would bear a tremendous financial andadministrative burden under such a system; maintaining records, requesting rebates, andfinancing, through their own cash flow, the lag time between the submission of rebateforms and the receipt of the rebates. Most independent pharmacists could not handle thisliability, and would likely choose not to participate, losing customers, and businessviability, in the process. Those that chose to participate would find the costs to be soprohibitive that they too would find themselves veering toward bankruptcy. Any selective


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discount system that does not provide the infrastructure and administrative assistance tosupport such a scheme would inevitably bankrupt independent pharmacies.

Selective regional discounts are unworkable without significant infrastructure to handle theadministration of such a system, but the problem is even greater than this.

The truly poor, who cannot afford their needed medicines, would find little relief frommandated price cuts. Many of those unable to afford $300 or more per month would findlittle relief if the cost were reduced to $200, because the problem is not the prices chargedbut the lack of coverage. As mentioned earlier, for the Medicare population the falseeconomy of the government system, which pays for hospitalizations but not the medicinesto prevent them, is sorely outdated and in need of reform. Until that system is repaired, oruntil the research-based pharmaceutical industry is forced out of business and providestheir products free, there will be calls for lower prices for drugs because they are the onlycomponent of their health care that otherwise insured patients must pay for.

In the meantime there are several options to assure people do not go without necessarymedicines. First, the White House has observed that roughly 60% of Medicare patientswho are eligible for Medicaid, which provides outpatient medicines, are not enrolled. 24 Anoutreach program to enroll these citizens, who account for 12% of Medicare beneficiaries,would reduce greatly the burden that lack of comprehensive prescription coverage placeson these people. Although this would increase the rolls and expenditures of Medicaidprograms, the coverage of prescription drugs for these citizens, as demonstrated throughthe studies cited throughout this document, would likely decrease the funds expended onthese same people through the Medicare program.

To provide perspective in this case, consider the testimony of Michael Hash, DeputyAdministrator of the Health Care Financing Administration (HCFA) who, in speakingbefore the House Commerce Committee in September 1999, presented a case of aMedicare beneficiary from New York City who couldnt afford the $30 monthly cost forhis antihypertensive medication and stopped taking it. He then suffered a stroke that lefthim without speech or the use of his right arm, and cost the Medicare program $10,000 inhospital bills. For the many cases such as this price cuts, no matter how deep, will notaddress the fundamental problem of the lack of coverage of prescription drugs underMedicare, and the costs to the system brought about by that omission.

Another option for patients lacking insurance coverage or sufficient resources fornecessary prescription medications is the use of the many Patient Assistance Programsoffered by most research-based pharmaceutical companies. A recent General AccountingOffice (GAO) study of these programs found that patients who truly cannot afford theirmedicines can receive them free of charge from the manufacturers. Even patients withinsurance who have exhausted their drug coverage for the year can qualify for thisassistance in over 80% of the programs. These programs, offered by nearly all major

24National Economic Council/Domestic Policy Council, Disturbing Truths and Dangerous Trends: The FactsAbout Medicare Beneficiaries and Prescription Drug Coverage, July 22, 1999


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companies, were put in place voluntarily by the firms to assure that people lacking otheroptions will not be denied access to needed medications. The use of Patient AssistancePrograms has been growing by over 30% annually, in terms of the number of patientsserved, and the GAO reports that companies provided over $500 million worth ofmedication free of charge through these programs in 1998. A complete listing and

description of these programs can be found at: http://www.phrma.org/searchcures/dpdpap/

Such programs would not be expected of any other industry, even though many peoplecannot afford to pay for their basic utilities or other necessities of life any more than theycan pay for their prescriptions. This safety net is needed only in the United States, where asignificant proportion of the population does not have adequate insurance coverage for themost cost effective medical care resource -prescription drugs.

The many proposals to reduce the prices of pharmaceuticals in the US are based on nave

and simplistic assumptions and, if implemented, would endanger the current productivity

and future viability of the research-based pharmaceutical industry in the United States.

Several proposals would put other sectors, such as retail pharmacy, at risk as well. Unlike

any other industry, the makers of pharmaceuticals have made efforts to assure that

patients will not be denied access to their products because of their financial situations.

The failure of insurers, and the federal government, to include the single most cost

effective element of medical care, pharmaceuticals, in basic medical care coverage plans

points to their narrow and short-sighted approaches to health care and their failure to stay

current with medical technology.

In Search of Fair Balance

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