Bitter pills

Pharmaceutical companies are apoplectic over Gore's prescription drug pricing proposal

By Alan Berlow
Published August 31, 2000 6:00PM (EDT)

As the Bush campaign unleashed a new television ad Monday attacking Al Gore's prescription drug plan for senior citizens, 73-year-old Violet Quirion was on a bus from Waterville, Maine, to the Canadian border town of St. Stephen, New Brunswick, to purchase a three-month supply of the medicines she takes for arthritis and a stomach condition.

Quirion, a retired quality-control worker at the local Hathaway Shirt factory, walks with two canes and lives on $1,000 a month from Social Security and a small pension. And as one of 70 million Americans who has no prescription drug coverage, she offers a glimpse into the emerging battle over prescription drug prices in this year's presidential race.

Quirion was heading for Canada because she can purchase her drugs there -- Relafen, an anti-inflammatory arthritis drug, and Prilosec, which treats her stomach problem -- for nearly 60 percent less than she would have to pay at the drugstore in Waterville ($399 instead of $979). Like many seniors on fixed incomes, Quirion is acutely sensitive to the price of prescription medications, which have risen at rates of 10 to 14 percent in the past five years and are projected to rise another 10 percent annually until 2008. She says she simply can't afford to pay U.S. prices for all the medications she needs.

"I skip 'em a lot and buy the cheapest meals I can find," she says. "Otherwise I couldn't get by. I see a lot of my friends cutting pills in half or skipping meals or their drugs."

The vision of low- and moderate-income seniors across the country skimping on servings of potato salad to afford a heart drug that could keep them alive is just the sort of nightmare that has politicians from both parties falling over one another to convince seniors they're on the case. But where Gore, in his recent populist incarnation, has been accusing the drug industry of "price gouging" and has made the drug companies one of the cardinal bogeymen of his campaign, Bush appears to have recognized only belatedly that senior citizens view skyrocketing drug prices as a colossal problem.

Bush's decision to attack Gore on this particular issue is more than a little perplexing. He still doesn't have a plan of his own for voters to examine. Nor does he seem to realize that it's not only Gore who is out in front of him on this issue. A sizable number of state legislators, including many from his own party, are pushing initiatives that are far more radical than anything the Texas governor is likely to come up with, and far more consistent with the approach Gore is taking.

The Gore campaign has been hitting two big points in this debate. The first has to do with a new government-financed drug benefit under Medicare, which provides coverage to 39 million elderly and disabled Americans. The second has to do with whether the government can force down the prices it pays for drugs provided under Medicare.

Gore and many state legislators are proposing efforts that would have government or government-authorized agencies negotiate drug prices with manufacturers. This may not seem like a terribly radical idea, given the fact that government negotiated prices are the rule in just about every other country in the world. But these proposals are making the drug industry apoplectic because it fears that government entities representing millions of consumers could effectively try to dictate the price they pay for drugs.

Bush's new television ad attacks Gore for "pushing a big government plan that lets Washington bureaucrats interfere with what your doctors prescribe." In fact, the only limitations on drugs would be decided by the same sort of pharmacy benefit managers who make such decisions for Medicare patients today in hospitals around the country. The new managers would simply be choosing drugs for a vastly larger population at, presumably, a substantially reduced price. The big difference between Gore and Bush is that Gore would provide drugs free to the poorest seniors and pay up to half of the drug bill for other seniors until they had paid out $5,000 and everything on top of that, while Bush seems to favor something closer to a plan approved by House Republicans that would help seniors buy insurance to pay for their drugs. Bush has yet to suggest any plan for reducing the cost of drugs purchased either by the government under Medicare or by ordinary citizens.

In the abstract, Bush's claim that he will provide seniors a "choice" of providers to pay for their drugs rather than a single government-mandated plan may sound appealing. But when the governor takes the details of his program on the road, he's likely to find that many Republican state legislators are so exasperated by the huge drug price increases and the clamor against high prices from their constituents that they are ready to take some very un-Republican measures to force lower drug prices down the throats of the pharmaceutical manufacturers.

"The pharmaceutical companies are getting away with murder in this country," says Florida state Rep. Nancy Argenziano, a Republican in a key presidential battleground state with a huge population of senior citizens. "And until someone has the gumption to tell them they have to come to the table and talk [about lowering prices], we're going to have to threaten them with price caps on drugs."

Argenziano, whose mother lives on an income of $900 a month and has a difficult time paying for her medications, insists that manufacturers should be forced to negotiate discounts of at least 25 percent for senior citizens. "I'm a Republican. I believe in private enterprise," she says, but "Americans are subsidizing all of these other nations," because all other countries mandate lower prices. Argenziano plans to introduce legislation that would have Florida buy drugs in bulk for all uninsured senior citizens.

In a similar vein, John Marchi, a conservative Republican state representative in New York, has proposed a law stipulating that drugs not be sold in his state at prices higher than the lowest price paid by any federal or state entity. This crowd-pleasing proposal would effectively give every citizen in the state drugs at discounts of 30 percent or more.

Are New York and Florida exceptions to the rule? Hardly. More than two dozen states are considering initiatives to control drug pricing. And unlike the presidential candidates' debate or the debate in Washington, where Republicans and Democrats are largely divided along party lines, there is a surprising degree of bipartisan agreement at the state level.

In May advocates of lower drug prices were given a major shot in the arm when Maine enacted a law that seeks to force drug companies to negotiate prices for any citizen of that state lacking prescription drug coverage -- about 325,000 of the state's 1.2 million people.

Chellie Pingree, a Democratic state senator, insists that the new Maine law, which she wrote, creates a system that is really no different from what an HMO does when it negotiates prices for its patients, or what hospitals do when they negotiate large bulk purchases. But Pingree says she would like to see Maine negotiate discounts that are even deeper than those provided to the typical HMO.

"We really want to get a price like that negotiated by the Federal Supply Service, a discount of 30 to 40 percent," she says referring to the federal buying agency that negotiates deep discounts for veterans hospitals, Medicaid patients, the Public Health Service and other government-run programs.

The Pharmaceutical Research and Manufacturers Association (PhRMA), the powerful lobbying organization for the country's major drug producers, has assailed the Maine law as "anti-patient, anti-innovation, anti-business and unconstitutional" and recently filed a lawsuit in the U.S. district court in Bangor to stop the law from taking effect. PhRMA officials argue that the statute is unconstitutional because it would regulate commerce beyond Maine's borders. They also claim that it would deprive the companies of the money they need to research and develop lifesaving drugs and would lead to inferior healthcare.

But Joe Bruno, a Republican state representative who owns 10 pharmacies and helped negotiate passage of the Maine law, doesn't buy it. He says he's not worried about the industry cutting back on R&D.

"I've heard that argument a zillion times, and I've never seen it happen. My response is, 'Why are you spending more on advertising than research and development? Why don't you cut back on your advertising?'" Still closer to home, Bruno rejects another industry claim -- that the law would put many pharmacists out of business.

"I think I understand the retail pharmacy business pretty well," Bruno says, "and I wouldn't anticipate much difference in profits, because I think the lower prices will mean higher sales."

Indeed, a 1999 Merrill Lynch study reached the same conclusion. It projected a "worst case" scenario in which industry profits would decline six percent if all Medicare recipients without drug coverage were able to purchase drugs at a 40 percent discount. "On a best-case scenario," the report predicted, "the sales impact could be slightly positive."

Jeff Trewhitt, a PhRMA spokesman, acknowledges that the industry already negotiates discounted prices for Medicaid recipients, the Veterans Administration, American Indian health services and a variety of other federal programs, and that these are all "a form of price controls." He says the industry has lived with controls on 15 percent of the American market but won't extend such discounts to millions of additional customers. "You have to draw the line somewhere," Trewhitt said.

In practical terms, drawing the line means keeping that other 85 percent of the market unregulated so the drug companies can set prices at whatever levels the market will bear. It also means stopping state initiatives such as the one in Maine before they take effect. "The last thing we need," says Trewhitt, "is a patchwork quilt of differing state laws that will slow development of new medicines."

But in the absence of any fix from Washington, industry efforts to thwart new state laws are becoming increasingly difficult. The Vermont legislature very nearly approved a bill similar to that on the books in Maine. And legislators in Maine, New Hampshire, Vermont, Massachusetts and New York are discussing creation of a single, gigantic buying cooperative that would negotiate prices on behalf of those states' 25 million citizens.

Will buying pools solve the problem of senior citizens like Violet Quirion? Not likely. The proliferating state efforts to negotiate or force lower drugs prices don't begin to help those people without any health insurance, or those seniors who still can't afford drugs even at a 40 percent discount. In the end, there is also broad agreement that some sort of federal remedy is necessary.

But Maine's Pingree isn't holding her breath. "Everyone says, 'Why don't you allow a federal solution?' Well, welcome to our world. The fact of the matter is the Congress isn't doing it, so we're trying to be creative and do something for our people and put some pressure on the Congress."

For the rest of this week, Bush's TV ad will hammer away at Gore's prescription drug proposal in nine key states, and Gore will be answering with ads of his own. But it's unlikely that these 30-second skirmishes will have much effect on the target population. Large numbers of senior citizens are well-versed in this issue and they are unlikely to be sedated with placebos and anodynes.

Unless Washington acts to provide senior citizens a drug benefit under Medicare, it's a solid bet that more and more states will follow the example of Maine and try to force the pharmaceutical industry to lower its prices. In the meantime, there's no question that the growing momentum of those state efforts is being heard in Washington. But nothing is likely to come out of the Capitol until after the elections.

Quirion insists neither presidential candidate is proposing the broad solution she believes is necessary. "We need national healthcare," she says. "That way everyone will get the care that they need."

But the Clinton-Gore administration tried that approach and paid a heavy political price. For the foreseeable future voters are probably going to have to settle for incremental health care reforms, if they get anything at all.

Alan Berlow

Alan Berlow is the author of "Dead Season: A Story of Murder and Revenge." His writing has appeared in the The New York Times Magazine, Atlantic Monthly and Harper's.

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