03 July 2004

Let Medicare look for drug deals

Efforts to legalize the reimportation of U.S.-made drugs from Canada has the U.S. pharmaceutical industry worried about being subjected to government price controls, which they decry as a form of socialism.

In truth, U.S. drug-makers have a lot more to fear from the spectre of capitalism. As the Department of Veterans Affairs has already shown, mass buyers of pharmaceuticals can command the same healthy discounts on drugs that volume buyers of other products receive.

The U.S. drug industry has been largely shielded from these market forces because it has cajoled compliant members of Congress to ban the largest customer of all, Medicare, from negotiating similar discounts.

Now, an AARP survey has reopened the debate on drug pricing by reporting that makers of best-selling medications raised prices after passage of the 2003 law authorizing a prescription drug benefit for seniors under Medicare.

The first phase of that new law, which allows seniors to get discount cards from retailers, is in effect. The survey claims those savings were partially offset when drug-makers increased the prices they charge wholesalers for the top 200 brand-name drugs an average of 3.4 percent in the first three months of 2004, while inflation in general was 1.2 percent.

AARP gave crucial backing to the new Medicare law - and was heavily criticized by some of its members for doing so. Now, it is urging that Americans be allowed to reimport drugs from Canada and other nations. The Bush administration has opposed reimportation, citing safety concerns. But the drug industry has a much stronger - and quite valid - reason to fear the mass reimporting of its products.

Bristol-Myers spokesman Rob Hutchison reports his company spends an average of $800 million on each new drug it develops. "The prices of our innovative medicines reflect the research needed to discover and develop them."

We agree. But research and development costs are usually recovered in the United States. When U.S. drugs are exported to Canada, the Canadian government imposes a price ceiling that is often much lower than the U.S. price. Drug companies can live with that lower foreign price because they have already recovered their development costs in the United States. But if massive numbers of U.S. drugs are exported to Canada, then reimported at Canadian prices, U.S. companies will have less incentive to develop new drugs.

The Post believes that any U.S. price controls on drugs should be mandated openly by Washington, not laundered through Ottawa. But we also believe drug companies should not be exempted from the market forces they purport to believe in. The ban on Medicare negotiating lower prices to reflect its mass buying should be repealed immediately. Seniors should have the same buying power as veterans

A Denver Post Editorial
Saturday, July 03, 2004

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