Drug Firms Coming Under Government, Consumer Fire, Forbes Reports
With seniors in a "palpable rage," so "fed up" with rising pharmaceutical costs that they board buses to Canada and Mexico to purchase less expensive medicine, the "resentment" against the drug industry has "boiled over into the American mainstream" and placed companies' "fat" profit margins "at risk," Forbes reports. The 10 largest U.S. drug firms have brought in $179 billion in sales over the past year, reaping a gross profit of $121 billion. Drug prices have reached a high point in the United States, while pharmaceutical firms sell their products at a sometimes substantially lower rate abroad, spurring a "popular revolt" among American consumers. According to drugmakers, pharmaceutical firms that offer less expensive drugs to poorer nations recoup their "billion-dollar" research outlays from American consumers. That argument, however, isn't popular with lawmakers, rendering pharmaceutical firms "inevitable prey for anticapitalist legislation." Forbes concludes, "Here come price controls. There goes the R&D budget." Hoping to quell voter concerns, Congress recently passed a drug reimportation bill, the Medicine Equity & Drug Safety Act of 2000 (HR 4461), which allows pharmacists and wholesalers to import from abroad U.S.-made pharmaceuticals that meet federal safety standards and "turn[s] the pricing structure of the drug industry on its head." Lawmakers approved the measure "over the dead bodies of the pharmaceutical industry lobbyists," and Forbes calls the legislation "just the opening wedge" in the attack on drug companies. "Your heydays are over, that's what I tell the drug companies," Princeton University medical economist Uwe Reinhardt said, adding, "I think their 18% rate of return on assets will be pushed to a more normal level. Just watch the slaughter." During the campaign this year, prescription drug costs "dominated" races, with candidates from both parties "tripping over each other" to appease seniors. "I'm not waiting for the drug companies to come to the table before acting," Sen. James Jeffords (R-Vt.), chief sponsor of the Senate version of the reimportation bill, said. In the House, even Rep. Dick Armey (R- Texas), once "immovably opposed" to changing the drug industry's price structure, rallied support for the reimport legislation. Pharmaceutical companies, however, "hate" the bill -- "which amounts to price controls" -- and argue that the legislation will save consumers little, citing the costs of repackaging pills to meet U.S. standards and the additional U.S. health inspectors needed to enforce the measure. But according to Forbes, the industry's real opposition lies in the bill's "prodigious threat to profits." Although experts cannot predict "[h]ow bad a hit" the legislation will inflict on the industry, Constantine Clemente, Pfizer's executive vice president for corporate affairs, contends that the company could lose 10% to 20% of its U.S. sales, or about $14 billion, next year. "These are uncharted waters. We could be hurt," he said. ... May End in Price Controls In the next session, Congress will likely hold hearings to determine whether to reduce "monopoly protection" on drugs from 20 to 10 years. American consumer groups, as well as "[f]inancially battered" HMOs, will "band together" and blame expensive prescription drugs as the "major culprit" behind increased health care costs, insisting on "sharp discounts" from listed retail prices, Reinhardt predicted. He added that lawmakers, driven by a "populist swell," will probably take action. "The drug industry sits in the hand of government. Ultimately, they will be pushed around by the government," he said (Lenzner/Kellner, Forbes, 11/27).This is part of the KHN Morning Briefing, a summary of health policy coverage from major news organizations. Sign up for an email subscription.