Drug R&D Eats Most of Rx Cost

July 7, 2008 - 8:02 PM

(CNSNews.com) - The high cost of researching and developing new drugs is the single most contributory factor to today's drug prices, and legislative efforts to regulate drug manufacturers would have a long-term negative effect on the quality of health care for most Americans, health care experts told CNSNews.com.

If a bill similar to that passed in Maine last week - which allows the state of Maine to impose price controls if drug manufacturers don't agree to lower their prices after three years - were to be copied by states across the country, consumers would see a dramatic drop in essential research and development, experts say.

"We've had a whole host of new drugs introduced in recent years for illnesses such as heart disease, depression, osteoporosis, and we're not going to see new drugs like that in the future if the drug companies are not free to price drugs in a way that they can recover research and development costs," said Alex Tabarrok, research director of the Oakland, California-based Independent Institute, a non-profit public policy think tank, in an interview with CNSNews.com.

Drug manufacturers spend an average of $500 million to develop a single new drug, and legislation like that enacted in Maine would seriously impede new drug development, said Tabarrok, whose agency is soon to publish a book called American Health Care.

Health care experts question studies that say drug prices are higher in the United States than in most other countries. Comparing drug prices and not looking at the other differences in the systems can only lead to false conclusions, they say.

For example, studies by the General Accounting Office, which concluded from data for 1992 that US drug prices were 32 percent higher than prices in Canada and 60 percent higher than prices in the United Kingdom, are misleading, health experts say.

Most countries, other than the United States, regulate drug prices either directly through controls on prices, indirectly through limits on reimbursement under insurance schemes or through profit controls.

"When they're comparing the United States and Canada, they're looking at entirely different health care systems," said Victoria Craig Bunce, director of research and policy for the Alexandria, VA-based Council for Affordable Health Insurance, in an interview with CNSNews.com.

"On the one hand, you have government-controlled health care systems where it takes you six months to a year to get to see a specialist, and then you have the free market where you can get in right away. In a free market society, there are going to be differences in prices. The benefit to that is you have access to health care services that you don't have in the government programs," Craig Bunce said.

Prices are lower in underdeveloped countries, like Mexico, but selling to these countries at reduced profit allows drug companies to recover at least some of their research and development costs, which in turn brings down prices in the US.

Legislation should build on the success the system enjoys now, "which is a competitive marketplace, no price controls, and lots of incentives for research and development," Tabarrok said. "In that way, we get new and better drugs all the time. As those drugs come off patent, prices fall, and every consumer benefits, both now and in the future."

One-Third of American Seniors Without Drug Coverage

While most American seniors reportedly spend more on entertainment than on drugs, one-third of seniors, or about 15 million people, suffer hardship because their income is high enough to disqualify them for Medicaid, but they are not affluent enough to pay for expensive drugs.

Most short-term strategies for Medicare reform target this group, but many conservatives are skittish about adopting a fully-fledged Medicare prescription program.

"There are plenty of seniors who have a tough time, but I think there are plenty in the under-65 market who do also," Craig Bunce said. "That's a piece of the pie, but not the entire pie that we should be taking a look at in terms of Medicare reform. It's a political issue and a 'feel good' issue. No one wants to deny seniors care, but there are 40-something million uninsured individuals and they also deserve access to basic health insurance, not just prescription drugs."

Craig Bunce said a lot of people are using "prescription benefit managers" and "pharmacy benefit managers" to obtain considerable discounts in drug prescriptions. "It may not be as much as some would like, but we think that's a good avenue," she said.

'Breaux-Frist 2000' as Possible Model for Reform

"It's no longer a question of whether to add prescription drugs [to Medicare], it's how to add them while making the program stronger," said Senator Bill Frist (R-TN), who recently proposed a measure to balance Medicare reforms with prescription drug coverage.

Together with Senator John Breaux (D-LA), Frist is pushing for an incremental alternative to the "Breaux-Frist 2000" bill, pending before the Senate Finance Committee, which proposes to "balance real Medicare reforms with seniors' needs for prescription drug coverage."

The senators said congressional approval of "Breaux-Frist 2000" would put the country on the road to real Medicare reform "based on the advancements included in their bipartisan 'Medicare Preservation and Improvement Act' introduced last November."

Breaux and Frist adapted some components of their original legislation, including a universal, affordable prescription drug benefit, and they will urge the Senate Finance Committee to adopt the revised plan as the final Medicare proposal for full Senate consideration later this spring.

"This plan calls for prescription drugs and structural reform," Margaret Camp, spokeswoman for Senator Bill Frist, told CNSNews.com. "We say it's irresponsible to add prescription drugs to programs without implementing structural reform because you're just adding more benefits without reforming the underlying program, which will still go bankrupt as you see demographics shift and fewer people pay into the program.

"We want to bring competition into the system by allowing other groups to offer Medicare programs, instead of it all being run under this federal agency, which is outdated and inflexible," Camp said.