MEDICATION INFLATION
Rowse, Arthur E.
FAILING HEALTH Medication Inflation BY ARTHUR E. ROWSE If you have noticed how much medicine costs have risen in recent years, you will understand why Leona Bivens became distraught at a Senate...
...Variations in prices are not always related to volume...
...To improve their image, they spend large sums each year explaining through advertisements and pronouncements that the main reason for rising prices is the increasing cost of researching and developing new medicine...
...Most are generic versions of drugs that have lost their monopoly patent protection...
...manufacturer, doesn't like the loss of these potential customers and has complained to the the U.S...
...Some clinical studies reportedly have been done by drug companies to determine how best to market a product to certain doctors...
...At a time when the prices of many medicines have become prohibitive, millions of other Americans have no insurance coverage for medicines out of the hospital...
...Companies with patented brands continue to hold high prices—and even raise them— long after patents expire and lower-priced generics become available...
...Many brand-name products were found to cost more than twenty times their generic equivalents...
...The cost of medicine now exceeds the cost of doctors in the huge Medicaid program...
...They contend that always buying the cheapest "me-too" drug for any ailment is wrong because any drug may work better in one person than another...
...The government pays the rest...
...With its huge clout, for example, DVA can buy 500 five-milligram tablets of diazepam, the generic equivalent of Valium, for only $3.85...
...These privileges were designed, states the legislation, to encourage development of drugs with "little or no commercial value...
...Indexes measure only the increase from each starting point...
...But he says the medicine share of health-care costs in the United States dropped from 12 to 7 per cent from 1965 to 1987...
...As a result of the investigation, Pryor introduced a measure that would require state Medicaid programs to buy only the lowest-price drug among those that are therapeutically similar but chemically different...
...A year's supply of erythropoietin, for kidney dialysis patients with anemia, costs $6,240, and AZT, a medication shown to retard AIDS, costs about $6,400...
...The committee also questioned the extent of the industry's share in developing new drugs...
...But the power has never been invoked or even seriously considered...
...Doctors tend to remain loyal to patented brands because drug manufacturers spend considerable sums convincing them that brands are better than generics...
...military purchasers...
...Luckily, her insurance plan pays most of the bill now, but Bivens said she is afraid she might lose her ability to live independently, then have to move and lose her health insurance...
...That was when legislation made it easier for generic substitutes of patented drugs to be marketed...
...The elderly are especially vulnerable...
...The only suggestion offered at the hearing came from Senator Pryor...
...But the drug effect eventually wears off, and other, less effective medications must be tried...
...Hospitals generally pay less at wholesale and charge more at retail than drugstores...
...The House passed such a measure July 30, but Senate approval is not considered likely in this session of Congress...
...According to trade sources, independent drugstores usually get a discount of 13 per cent, and chain druggists about 22 per cent...
...For people on Medicaid and the relatively few whose insurance covers such costs, these prices may not hurt much...
...Why does Somerset Labs need to charge me such a high price for a drug where the ongoing research is partly subsidized by NIH [the National Institutes of Health], and where the company gets tax breaks from the Government...
...But there were no takers in the audience of drug-industry representatives...
...it ought to be a partner of the industry...
...Meanwhile, cries for help from the public have gotten louder, especially in recent years...
...Federal officials have launched campaigns to slow down increases in costs of doctors and hospitals, but they have had little effect on drug or medical bills...
...Treasury Department tried to recapture some of the Puerto Rico tax write-offs because they were not generating the employment for which the law was designed, Vice President George Bush quietly sought to block the move...
...Prices between stores for the same items, brand or generic, were also found to vary greatly, showing that buyers can save significantly by shopping around...
...Not surprisingly, more and more Americans are buying drugs by mail from abroad...
...From 1967 to 1988, the average price of a prescription rose from $3 to $15, an increase of nearly 20 per cent a year...
...But she was not complaining about her debilitating illness...
...But for others, the stress can be unbearable...
...Few bulk buyers actually pay the published wholesale price because it is for a theoretical single package...
...Because generics can be made so cheaply," he says, "this has drastically shortened the product life-cycle of brand-name drugs" during which research and development expenses can be recaptured through prices...
...But hidden in the news reports was the fact that both brand-name and generic drugs have failed FDA standards at roughly similar rates...
...That figure represents a 20 per cent reduction forced on BurroughsWellcome, the manufacturer, in 1988 by AIDS victims, but does not reflect reduced dosages recently approved by government regulators...
...Since it was introduced last October, a new drug, Eldepryl, has proven superior in both early and late stages of the disease...
...In 1982, when the U.S...
...However, the Committee on Aging chaired by Senator David Pryor, Arkansas Democrat, did some research of its own last year and came up with different results...
...The Government is subsidizing this company...
...Like many of the 500,000 Americans with Parkinson's, Bivens was able to continue working for a number of years after the onset of the illness because of Sinemet, a drug made from L-dopa...
...But Pryor's staff pointed to FDA data showing that only twenty-three of the 182 NMEs approved in this period were considered by the Government agency as important advances in drug therapy...
...Tax breaks for the drug industry are numerous and substantial...
...Markup percentages vary greatly...
...Savings for taxpayers could be substantial in the Medicaid program, where medicines cost $3.5 billion...
...That is what enraged Bivens...
...No estimate is available on how many people may have hastened their own deaths because they could not afford life-giving medicines...
...The Government," he emphasized, "shouldn't be an adversary...
...Senate aides estimate that 15 per cent of them are unable to pay for their medications...
...prices, and in some cases for as little as one-tenth...
...They expressed frustration at the unwillingness of any major drug company to even discuss the matter at a formal hearing...
...The seventy-three-year-old widow from Seal Beach, California, has Parkinson's disease, a deterioration of nerves that eventually can leave victims unable to walk or control the body's persistent shaking...
...But price competition does not extend far beyond generic drug rivalries...
...He also owned $145,000 in stocks of Lilly and Bristol-Myers before putting them into a blind trust...
...Phrases to assure such a result-under a colored flag of each state—varied from "Dispense as written" to "Brand necessary...
...A competing drug, Eminase, was recently marketed at $1,700 per injection, bringing it to $2,500 or so on the bill...
...Despite the tidal wave of medication inflation, it is still possible to find genuine bargains at the drugstore...
...When asked by Pryor to comment, one witness said he did not like the idea of the Government setting prices...
...It pointed out that the Government has done the basic research for many medical best sellers, including the highly lucrative AZT for AIDS and most anticancer drugs...
...But price indexes fail to measure the true increase over the years because they don't show how initial price levels for newly patented drugs have risen...
...Behind the industry's ability to set prices almost at will lies a network of favorable laws and regulations built up through the years by one of Washington's more powerful lobbies...
...Only the Department of Veterans Affairs and the Defense Department have tried—with impressive results...
...price...
...In a forty-eight-page staff report, it questioned the $ 125 million figure for creating a new drug and contended that most of the money spent by the industry on R&D went for products with little or no therapeutic value...
...No longer does the PMA refer to its members simply as drug manufacturers...
...As a result, companies like Hoffmann-La Roche can continue to raise the price of Valium long after its patent has expired and still make a profit while smaller sellers of its generic version compete furiously for crumbs at the other end of the price scale...
...They have obtained an average discount of 41 per cent off wholesale prices for drugs available only from one firm and 67 per cent off for drugs from multiple sources on bids...
...The massive Medicaid and Medicare programs continue to pay retail prices or close to them...
...FDA disclosures last year that some generic drugs failed chemical tests served to enhance the prestige of brand names...
...Food and Drug Administration (FDA) that AIDS patients may be violating the Federal prohibition against importing prescription medicine without a license...
...Among its major recent accomplishments is a patent-law change that gives companies not only seventeen years of monopoly pricing but up to five years more to compensate for any delays in obtaining marketing approval after a patent is secured...
...A month's supply of the aerosol drug, which prevents PCP, a pneumonia that is the leading cause of death for AIDS victims, sells there for $26, one-fifth of the U.S...
...a rise in the price of one was always followed by increases for the others...
...That is largely because of strong brand loyalties built over the years with extensive solicitation of doctors...
...Take the new clot-breakers for heart-attack victims...
...She told the Committee on Aging she must use a walker at the retirement home where she lives and she cannot go out without a companion...
...I prefer to buy my medicine the legal way," she said...
...It noted that the Government has essentially given many new drugs to the manufacturers after they had developed them with Federal personnel or funds...
...But their pride is tempered by an uneasiness about appearing to profiteer on sick Americans...
...But it is the base price for all discounts...
...I continue to improve," she said with a quiet sob, "but at what cost...
...They are the real buyers of medicine when they prescribe what patients must purchase...
...All other countries except South Africa set some limits on medicine costs...
...Pryor is now said to be planning a simpler but broader bill...
...Critics have also questioned how much of industry R&D is truly "biomedical" and how much is cosmetic...
...The twenty-three represented only 3 per cent of the 781 drugs approved in those years...
...In some cases, introductory prices have soared off the charts...
...She was angry about the cost of her prescription medicines, which she said totaled $3,518 a year...
...A 1984 law says that if the market for a drug is 200,000 patients or less, a company may be awarded the coveted "orphan drug status," a ticket to even larger tax credits and other corporate benefits...
...Government launched a major price action against drug companies came in the 1960s, when the Federal Trade Commission ordered five makers of the antibiotic tetracycline (Squibb, Upjohn, Pfizer, Bristol-Myers, and American Cyanamid) to stop fixing prices and rigging bids to U.S...
...The Washington Post reported last year that while Quayle served in the Senate, he was the leading Congressional recipient of money from drug political-action committees in 1986 and 1987 for speeches and appearances before industry organizations...
...Few industries have as much influence...
...Arthur E. Rowse, a free-lance writer in Washington, D.C., has long specialized in consumer issues...
...According to the Pryor Committee's 1989 report, the Federal Government has long had the power to break a patent monopoly and compensate the company in order to obtain drugs at what it considers reasonable prices...
...That is less than one-fiftieth the average wholesale price of $202.25 listed by Hoffmann-La Roche...
...But no attempt was made to use subpoena powers to force them to testify, as was done frequently in the past...
...Gerald J. Mossinghoff, president of the Pharmaceutical Manufacturers Association (PMA), says large price differentials are attributable primarily to changes in market conditions since 1984...
...According to Derek Hodel, executive director of People with AIDS Health Group in New York City, many AIDS sufferers buy pentamidine by mail from England to save money...
...According to Jeff Trinca, a tax specialist on Senator Pryor's staff, they include the ability to write off R&D costs in the year they are incurred rather than over the life of the product, as most industries must do...
...Drug executives are proud of their success in the business world...
...Stung by the public accusation, the PMA explained in a twenty-two-page response that the figure represented the cost of creating a New Molecular Entity (NME...
...PMA chief Mossinghoff acknowledges that prices have risen faster than other living costs in recent years...
...Hodel says the price in the United States has increased 400 per cent since 1984...
...I'm really mad about the price of Eldepryl," she told the Senators...
...At the two 1989 hearings by the Committee on Aging, Senator after Senator responded by deploring high prices and demanding that something be done...
...For four years in a row, Fortune magazine has named Merck & Co., Inc., the nation's largest drug maker, "America's most admired corporation...
...No comprehensive Congressional investigation of drug prices and profits has been held since those conducted by Senators Estes Kefauver and Gaylord Nelson in the 1960s and 1970s...
...In Europe, prices are controlled and patients pay only a small portion of prescription costs...
...While the Government's Consumer Price Index rose 26 per cent from 1981 to 1988, prices of all drugs jumped 88 per cent...
...The news media have also lost interest...
...When asked about the prospects of such a move, a committee staffer said: "Obviously, the time for that kind of an idea has not yet arrived...
...But people who buy their own medicines might wind up paying even more as drug companies shift lost profits into still higher prices to stores...
...They even outspiraled costs of doctors and hospitals, and they show no signs of letting up...
...During the first few years of the Reagan Administration, Bush helped head off and soften a number of proposed FDA initiatives when he served as director of the White House Regulatory Task Force...
...As ailing people become desperate about drug prices, many quit their jobs to qualify for Medicaid, according to testimony at the hearing...
...Medicine prices have been going up faster than other living costs for years...
...The organization maintains that "the cost of developing a new drug" reached $125 million in 1987, up from $54 million eleven years earlier...
...He proposed an informal meeting of drug industry executives, legislators, and the Secretary of Health and Human Services to discuss prices behind closed doors...
...As a consequence, most large drug manufacturers now have production plants in Puerto Rico...
...My sons are police officers and I believe in upholding the law...
...Industry influence not only echoes through the halls of Congress and regulatory agencies but is heard loud and clear in the Oval Office itself...
...For many older people, drugs are their largest living cost...
...Bivens said many of her friends obtain their drugs on the black market from overseas, where they are cheaper...
...Political clout also helps account for the absence of any major attempt by Federal cost-cutters to impose restraints on prices or profits even when life-sustaining drugs become unaffordable to many people and add heavy burdens on taxpayers...
...The ad spelled out graphically the precise words physicians must use on a prescription order in each state to make certain that pharmacists dispense branded Valium and not a less costly generic version of it...
...The ultimate in drug-price luxury belongs to Cyclosporin, an essential immunization agent in organ-transplant cases...
...In the same year, Bush told a meeting of drug executives that the Reagan Administration was succeeding in ending the Government's "adversarial relationship" with the drug industry...
...Although some 500,000 Americans have Parkinson's disease, fewer than 200,000 have the late stages of the disease for which Eldepryl was originally approved...
...The industry group contends that the FDA categorization is inaccurate and unfair...
...possession...
...Senate probers found no price competition among these "me-too" medicines with separate patents...
...But it is expensive, about $145 for a month's supply...
...Federal agencies and departments have done little to take advantage of their huge buying power by demanding bids from drug manufacturers...
...Pryor's proposal caused such a stir that some large firms began voluntarily to offer modest discounts to states that would agree not to exclude other drugs of theirs because of price...
...Criteria used by the periodical's panel of corporation experts in bestowing the honor were earnings growth, production innovation, and operating goals...
...He says the industry remains "highly competitive...
...Examples are the innovative antiulcer drug Tagamet and its imitators, Zantac, Pepcid, and Axid...
...Others even go without meals, says Senator Harry Reid, Nevada Democrat, citing letters to his office...
...After R&D is completed, a firm can become eligible for more tax credits—in this case, dollar for dollar—against production costs if they occur in an overseas U.S...
...Although the FTC decision was overturned, millions in refunds later flowed back to Government agencies and individual consumers through civil suits...
...But facts about such programs are hard to come by...
...Costs are escalating," says one ad, "because of the growing complexity of modern medicines and the seven to ten years necessary to move a new medicine from discovery through testing, development, and FDA approval...
...One reason cited is the growing power of the industry lobby to call the shots in Congress with campaign contributions and speaking fees...
...It went on to say that 80 per cent of industry R&D from 1981 to 1988 was for NMEs, which is called "clearly the true measure of the industry's innovative performance...
...Hearings on the subject are scheduled for September 14 and 17 by House and Senate subcommittees, but chances of legislation this year are slim...
...Until Parkinson's forced her to quit her job, she was a cardiac nurse-technician...
...But industry leaders helped block enactment and apparently got OMB to back down...
...For whatever reason, lawmakers have become reluctant to generate friction by introducing restrictive legislation or holding public hearings on drug prices...
...A Virginia musician says the drug costs him about $10,000 a year...
...FAILING HEALTH Medication Inflation BY ARTHUR E. ROWSE If you have noticed how much medicine costs have risen in recent years, you will understand why Leona Bivens became distraught at a Senate hearing in Washington last November...
...Drug prices, he says, are "less today than in 1967 when compared to the 'all-items' component of the 1967-based Consumer Price Index...
...Such variations are even more pronounced at the wholesale level, according to data compiled regularly by Medi-Span Inc., an industry reporting service...
...Recent surveys show that American-made medicines sell in Europe—apparently profitably—for about half the U.S...
...A survey of 1,050 pharmacies around the country last year by the American Association of Retired Persons found that shoppers could save an average of 50 per cent by buying generic drugs when they are available...
...They are now "America's pharmaceutical research companies...
...In July, the White House's Office of Management and Budget endorsed Pryor's idea as a cost-saving device in Congressional budget talks...
...I thought I had a good retirement, but how long can I pay the druggist's bill...
...The last time the U.S...
...Representative Henry Waxman, the California Democrat who chairs a health subcommittee, has been trying for years to tighten up the orphan drug law to make it fairer to both the industry and the public...
...Some hospitals and health maintenance organizations (HMOs) do even better...
...One ad claims that this makes the industry "the world's principal source of biomedical R&D support...
...It would require manufacturers to offer their drugs to Medicaid programs at the best prices offered to large hospitals and health-maintenance organizations...
...Before becoming Vice President, Bush sat on the board of Eli Lilly & Co., one of the largest drug firms...
...But the FDA has indicated that it will not prosecute individuals buying in this manner for themselves...
...Drug-industry executives blame currency fluctuations for many of the price differences...
...Since 1981, the upward price trend has accelerated...
...LyphoMed, Inc., the U.S...
...According to the Department of Commerce, average pretax profits on drug sales in the first half of 1989 were 22.6 per cent, nearly three times the 7.8 per cent for all manufacturing industries, and the return on investment (stockholder equity) was 42.7 per cent, twice that of all manufacturing industries...
...Fully aware of the down side of high prices, many drug firms say they provide medicines free to people who cannot pay for them...
...One intravenous dose of Activase was started at $2,200 wholesale, or about $3,000 at the hospital...
...The biggest discounts are obtained by the Departments of Defense and Veterans Affairs for their hospitals...
...A recent two-page color advertisement by Hoffmann-La Roche in the Journal of the American Medical Association shows the extent to which a manufacturer may go to push its brand...
...Somerset Labs, seller of Eldepryl, has such status...
...After his request unexpectedly became public, he withdrew it, saying it made him feel "uncomfortable...
...Ads of the PMA, the chief industry organization, report that in 1989 industry R&D reached $7.3 billion, exceeding biomedical research by the National Institutes of Health for the first time...
...Industry spokesmen have readily acknowledged that considerable research goes into reformulation of existing products, such as altering an oral medicine for use as an injection, a change that makes them eligible for new patent monopolies...
...Senators at the hearing reported receiving many complaints from constituents about medicine costs...
...Drug companies have also received the benign attention of Vice President Dan Quayle...
...After writing off all such expenses, a drug manufacturer can then take a therapeutic tax credit based on the same costs...
Vol. 54 • October 1990 • No. 10
