08 July 2004

Put drug companies on a short leash
Insatiable appetite for big profit margin hurts consumers, especially the elderly.

Americans, especially the elders among us, are finally starting to rebel against spiraling prescription drug costs and government programs that claim to make new, more effective drugs available and affordable but do just the opposite.

The highly profitable pharmaceutical industry is starting to feel the pinch. But what are the big drug companies doing in response? What they've always done: Spend more on lobbying, campaign contributions, advertising and legal fees to persuade government, consumers and courts to continue to give them breaks that add to their profit margin.

After all, why should drug companies change tactics? For decades now, they have been more successful than any other industry group at getting their way and making it pay.

Consider what benefits their lobbying and campaign contributions have gotten them from the federal government:

The Medicare reform bill's prescription drug benefit, passed last fall, made no attempt to control prices or encourage competition. And according to a study released last week by AARP, prices for prescription drugs most used by seniors have risen at three times the rate of inflation over 2003, and by 3.4 percent so far this year. AARP, which ironically threw its support behind the drug benefit, is now fussing that discounts offered by the new program will be more than offset by price increases. Drug companies don't care. They bought and paid for the freedom to raise prices with $40 million in campaign contributions over the past two years to members of Congress, most of it to Republicans.

In much of their advertising and lobbying, drug companies tout "research and development" as a major reason why they charge the prices they do for new drugs. Without high prices, they claim, there would be less money to invest in new life-saving pharmaceuticals. But, according to a new book on the topic, research and development budgets for drug companies are much smaller than their marketing expenditures, and considerably less than their profit margins.

Marcia Angell, senior lecturer in social medicine at Harvard Medical School and author of "The Truth About the Drug Companies: How They Deceive Us and What to Do About It," points out that most new drugs developed in the United States come out of government or academic research labs and are merely marketed by big drug companies. That is made easier by a series of laws passed in the 1980s that enabled universities and other tax-supported institutions to patent discoveries and license them exclusively to drug companies.

Once the drug company has the license, it can get exclusive marketing rights from the Food and Drug Administration for 14 years, enabling it to raise the price at will. After that expires and a generic form comes on the market, the price of the drug generally falls to about 20 percent of what it was. So the incentive, Angell says, is to change the drug slightly and repatent it, getting another decade or so of exclusivity in the deal. Very few really new, more effective and innovative drugs come on the market as a result.

Even when the big drug companies look as if they might be doing some good -- say, by offering discounted drugs to nonprofit clinics that serve the poor -- they aren't. Investigators at the Health and Human Services Department revealed last week that drug companies overcharged taxpayer-supported health care providers by $41.1 million in one month, The New York Times reported.

There were no penalties for such overcharges, nor was there a means for the clinics and hospitals to demand a refund of drug charges above the legal limits set by Congress.

Yet the federal agency in charge of the discount program, the Health Resources and Services administration, declined to ask Congress for the authority to assess penalties. A spokeswoman said the agency preferred "to continue exploring its options."

Consumers -- and voters -- should explore their options as well. It's time the nation's drug cartel was busted up.

Atlanta Journal Constitution, Editorial

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