Prometheus 6   

Applying Rumsfeldian tactics to health care

Safire writes on drug costs today. There's much I take exception to in the editorial, but I want to point out two specific issues for now.

Since marketing drugs at the level the manufacturers choose to costs as much as developing drugs, one could as easily say new prescription drugs cost so much mainly because it includes the producers' huge investment in marketing.

Wellmark Blue Cross Blue Shield published a series of reports on prescription drug usage in Iowa and South Dakota that has some interesting information that applies outside its market as well.

This direct to consumer advertising is medically unnecessary, because consumers are not qualified to judge whether or not these new drugs are applicable to whatever condition thet have…their sole purpose is to interest consumers in the most expensive treatment option.

As in the run-up to the Iraq war, spin rather than truth is the order of the day.

It will not lower prices here because management philosophy calls to seeking maximum, not reasonable, or even optimal, profit.

Safire's suggestion could start a trade war, one that (like the war in Iraq) we'd readily win on paper but could become a quagmire. That's because a large fraction (70-80%, according to a December 2000 NY Times article) of key components in the manufacture of generic drugs come from overseas.

The Doughnut's Hole
By WILLIAM SAFIRE

WASHINGTON

"As you ramble on through life, brother," goes advice on coffee shop walls, "whatever be your goal � keep your eye upon the doughnut and not upon the hole."

That wisdom is at the heart of the compromise that may be struck in a Congressional conference on a low-premium prescription drug benefit for people over 65.

In the first bite of the doughnut, a senior would pay only one-fourth of his drug costs up to about $2,000. Then comes the hole: the next $2,000 or so of costs isn't covered at all. But then the doughnut gets delicious: the senior pays only 5 percent of all costs above that. Only the poor would get a free ride, but nobody would be wiped out by the cost of catastrophic illness.

Other issues are yet to be resolved; conservatives (uncharacteristically) want high-income seniors to pay higher premiums, and liberals (typically) don't want private insurers competing with the government, offering the elderly a choice.

What bothers me in this healthy dickering is the move to encourage Americans � including governors and mayors who should know better � to buy U.S. drugs at half price or less in Canada and overseas where there are government controls on prices.

The price of most new prescription drugs is high in the U.S. mainly because it includes the producers' huge investment in scientific research. In Canada, the government strips out the cost of such research and imposes a low price ceiling. Shortsightedly, our pharmaceutical companies have meekly or greedily gone along with this foreign rip-off, picking up extra sales on a research investment already made.

But this foolish acceptance of foreign price controls means that the U.S. consumer is subsidizing the foreign consumer. Not being dopes, pursuing their economic interest, American bargain-hunters are now buying these drugs where they are sold cheaply � outside the U.S.

To counter this trend, our federal officials have been warning that imported drugs may be counterfeit or conflict with other drugs. That may scare some buyers, but most will take their chances. In reality, what with an open border and the Internet, sales will go to the cheapest seller. More Americans will join Canadians in buying drugs that do not support the cost of research into new drugs.

Thus has Phanny Pharma outsmarted itself. By willingly cutting its prices to sell into price-controlled economies, not only has it invited American buyers to go where the bargains are, but it has also invited U.S. politicians to call for foreign prices on products bought by U.S. state and local governments. And there go billions in private capital and earnings needed for costly research into new cures and treatments.

How do we stop our subsidy to foreigners that cannibalizes our home market? No new federal laws are needed to deal with this economic inequity; our drug marketers should just apply the irrevocable law of supply and demand.

The tough-minded approach: Raise overseas sales prices to include the cost of research (which should lower prices here somewhat). If the Canadian government says no, let Canadians who want our products buy direct from the U.S. via Internet or mail at the price that pays for research, as Americans do. If Canada forbids that, let its legislators answer to citizens who want prescriptions filled.

The tenderhearted approach: Our drug companies can accurately estimate the current Canadian-only prescription demand in Canada or elsewhere. They should restrict supply of those products at low prices to that level. When American purchasers compete with Canadians for that limited supply, price controls will come under pressure. Canada can then impose rationing, always unpopular in peacetime; or tolerate black markets; or lift its controls until U.S. bargain-hunters see no purpose in competing with Canadian buyers.

History continually teaches us that free markets work best. Government price controls discourage production and competition, create shortages and breed corruption. That's the lesson we're trying to teach Iraqis; why can't the pharmaceutical houses � as well as House and Senate conferees working to combine a costly new drug benefit with reform of Medicare � grasp that lesson at home?

In this, the doughnut is research-driven innovation; the hole is controls. As you ramble on through life, brother . . .