The Magazine

Nickel-and-Dimed to Death

Price controls for prescription drugs are a prescription for disaster

May 22, 2000, Vol. 5, No. 34 • By ROBERT M. GOLDBERG
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BY URGING PRICE CONTROLS on prescription drugs, killing Medicare reform, and then proposing a universal drug benefit for senior citizens, congressional Democrats and the Clinton administration have launched a war against drug companies that they hope will help them regain control of Congress and retain the White House in 2000.


Republicans at first sat in silence hoping the issue would simply go away. But the high price of prescription drugs is now the hot button issue of American politics, and the GOP is on the defensive. House Republicans as a result have unveiled their own prescription drug benefit for seniors, one that would subsidize private insurance for lower income and chronically ill individuals. Insurance companies are hostile to this measure, though, so the only GOP alternative on the table is senator Slade Gorton's, which is even more radical than the Democrats': Force drug companies to sell products in America at the lowest price found in either Canada or Mexico.


Gorton is in a tough reelection fight in Washington, where the issue of drug prices is especially controversial because of his state's proximity to the cheap prescription drugs doled out by Canada's price-fixing national health bureaucracy. So his political position is understandable. But he and other recent converts to the price-control crusade who would spread the practice of government-regulated drug pricing would also spread the virus of rationing that threatens medical progress as we know it. Kill the market for a product by limiting access and you kill the incentive and rationale for research.


And less access to advanced medicines, not lower prices, is where we will end up if we emulate the policies of Canada and England that congressional price fixers and the Clinton administration so admire. Consumption, driven in part by the creation of health care entitlements and in part by better drugs and better medical practice, is what mainly drives drug costs up. And governments that try to control these costs end up denying people, usually the sickest and the oldest, access to the drugs that are most innovative and effective, on the grounds that these new treatments are "too expensive."


In Great Britain last October, the National Health Service refused to pay for the new flu treatment Relenza. In order to control health care costs, the government health czars have set up a board called the National Institute for Clinical Excellence (known, chillingly, as NICE) to decide whether to pay for new technologies as they emerge. It decided Relenza, which costs about $ 40 for a course of treatment, wasn't worth paying for and took the added step of discouraging doctors from prescribing it for patients who might have wanted to pay for it out of their own pocket. There were plenty of data that Relenza helped people who could be really rocked by the flu, but NICE argued that it needed more evidence -- the ultimate bureaucratic dodge.


The NICE board advised getting more people immunized, which is ironic: In a country where flu shots are provided free, only 40 percent of the public gets them on a regular basis. In any event, flu shots work about 70 percent of the time and are useless against new strains of influenza, which can be deadly for people with compromised immune systems. In the end, during Britain's flu epidemic this winter, hundreds of elderly people died and thousands of people with asthma, lung problems, or heart conditions waited for hours, even days, for relief, gasping on trolleys in overcrowded health care facilities. When the morgues were overwhelmed by the dead, the National Health Service had to rent refrigerated trucks, the kind used for hauling meat, for temporary storage. We can't know how much this toll might have been lowered by a $ 40 drug, but it's the sort of question price-controllers should be forced to confront.


Similarly, many of the drugs that Hillary Clinton says Americans should be allowed to re-import from Canada so as to save money are in fact not made available to that country's seniors under Canada's prescription drug plan. Thousands of Ontario seniors are being denied new treatments available in this country for osteoporosis, Alzheimer's, and Parkinson's disease. Indeed, a spokesperson for health minister Elizabeth Witmer has admitted that many of the drugs being kept off the formulary "have long-term benefits both for our budget and for patients."


Even when new drugs are made available under government ration schemes, people have to wait for them to be doled out by bureaucrats or the private firms who are paid to make the decision for the government. On average it takes three years for most European countries to set a price and begin paying for a product once it is available in America. In Canada, it can take up to two years after a drug has been approved in the United States. The determination for the use of a drug is made by a review panel or a utilization review company, which may allow the use of a new drug for only a limited period of time. Studies by health care researcher Susan Horn have found that such restrictions can actually drive up the use of more expensive hospital and emergency room care -- because patients are sicker.


Finally of course, if you stop paying for new drugs, you discourage investment in innovation. No surprise then that Canadian drug firms produce few new medicines worth marketing worldwide. Price controls mean that Canadians, like other beneficiaries of government health care around the world, actually sponge off of American research. It is equally unsurprising that the operational headquarters of the new Glaxo-Smithkline company -- two formerly British drug powerhouses -- will be in New Jersey, arguably now the world's capital for drug development.


Ultimately, it is not just the price of prescription drugs that is at issue. It is their effectiveness in keeping people well, reducing death rates, and extending and enriching life for millions of people. Drug costs have been rising at 12 percent a year (while inflation in the cost of other services is only 5 percent) for a good reason: Prescriptions are making it possible to reduce the rate at which we use hospitals and other less effective and often more expensive medical interventions. Frank Lichtenberg, a professor at Columbia University Business School, estimates that a one-time pharmaceutical research and development investment of $ 15 billion saves 1.6 million life-years annually (which is worth about $ 27 billion in economic productivity) and reduces spending on doctors and hospitals.


Such new technologies undermine the great moral claim of all government health care systems: that universal coverage, economic redistribution, and heavy government subsidies to insure access are the key to better health. To the contrary: Medical progress and the welfare state are natural antagonists.


The Clinton Medicare prescription drug benefit proposal would give the government control of about 60 percent of the pharmaceutical market. As the largest purchaser of care for the most frequent consumers of pharmaceuticals (the elderly), Medicare would treat drugs as simply another entitlement, the sum total of which is more important than the quality or medical value of any of its parts. The idea that a Medicare drug benefit would always offer, in the words of one Medicare official, "drugs that were found to be reasonable and necessary by [a patient's] own physician" is laughable.


Government-run drug plans such as Medicare, Medicaid, and the Veterans' Affairs system already limit new drugs to contain costs. These programs deny and restrict access to new drugs for treating cancer, schizophrenia, high cholesterol, and ulcers that have been proven more effective and provide a better quality of life. The Clinton drug plan will apply the same template as all drug price-control plans, inevitably resorting to outright restriction of medical innovations through mandatory generic drug switching, restricted formularies, prior authorization from drug benefit managers for new drug use, and limits on prescription refills. There is no other way to handle medical progress, once you have defined its introduction as a threat to the system.


Indeed, proponents of the Clinton drug plan make no bones about denying people access to the mighty river of medical innovation to achieve their goal of a Medicare prescription drug benefit. Robert Reischauer, president of the Urban Institute, has said, "If you could tell me that we would provide coverage to 34 million [uninsured people], but the price of that [would be that] we would in 1999 have to live with 1997 medicine, I would say, fine, as long as the 1997 medicine continued each year."


The idea that we could serenely recommend a system that limits people with chronic and fatal illnesses to "living" with 1997 medicine is chilling. Does anyone who supports expanded drug coverage for seniors really desire that? This, after all, is the approach that caused the meat trucks to fill up with the dead bodies of flu victims in England. Such a statement suggests that support is growing for a system that would let people suffer and die in the name of universal coverage, that would demonize innovation and innovators on the one hand, and then force people to accept increasingly outdated medicine on the other. It's not just Hillary Clinton anymore who has her ideological heels dug in on this issue, but more and more of her party and an increasing number of Republicans, too. And make no mistake, waging a war against medical progress has already claimed real casualties and will claim more. The drug-price ideologues do not care to see the connection. Sadly, too many of the politicians who know better would rather pander to seniors than speak out. Too bad there's not a pill for that.




Robert M. Goldberg is a senior research fellow at the Ethics and Public Policy Center.