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Selected news articles which highlight important policy issues.

News: Weekly Archives

News for the week of 05-24-2004

As drug co-pays rise, health may decline
Los Angeles Times, 5-24-04

It is often forgotten in the debate over prescription medications that drug costs are, in truth, only a small fraction of total health care costs - and often save money in the long run by reducing spending on acute care (emergency room visits, hospitalization, more doctor's visits). This article, while it focuses on a RAND study showing how employer increases in drug co-pays impacts drug utilization, underscores this very point: patients with chronic illnesses like diabetes, asthma, and heart disease require the most aggressive drug treatment and suffer most when access to the best drugs is curtailed. The RAND study also found that as drug use declined, so did patient health. Many of the tactics now advocated by critics of high prescription drug costs - drug reimportation, restrictive formularies, price controls - would have similar effects on patients by putting bureaucrats in the position of rationing drug use, reducing the use of the new, and more effective drugs, and dampening investment in the next generation of miracle treatments for chronic diseases.

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Discount Cards Still Leave Fat Markups on Generic Drugs
Wall Street Journal, 5-26-04

Profits are the life-blood of market economies, driving innovation, investment, and improvement in everything from automobiles to pacemakers - but they are also, when it comes to health care, widely viewed with suspicion and scorn by those who think that health care ought to be cheap, plentiful, and free. Drug manufacturers are the particular target of anti-market vitriol because their profits are thought to be "excessive", although most observers admit that the drug development process demands enormous outlays of time and money - and that, as a result, profits have to be higher to compensate for the real risks borne by drug manufacturers. Comparatively then, generics, which account for up to 50% of all prescriptions U.S., ought to be viewed in a more benign light. After all, since they are by definition unpatened they are often less expensive than patented drugs and hence are less open to the accusations of greed that haunt patented drugs. Alas, no. Because generic firms simply appropriate the research and investment of others, their costs are marginal - the costs of the raw materials and machinery needed to make the next pill - and they bear none of the initial regulatory or financial risks of drug development. Consequently, while generic drugs can be significantly cheaper, they are also significantly more lucrative for those who sell them: pharmacies may buy generics drugs at pennies on the dose and then turn around and sell them for up gargantuan mark-ups - in some cases, as much as to 2,000%. According to the Wall Street Journal, some versions of the generic version of Prozac (fluoxetine) "can cost pharmacies about four cents a capsule, or less than $4 for a 90-day supply." However, these same pharmacies sell generic Prozac at $84 for a same 90-day supply. Devilish and reprehensible? Not really. The "right" price for a medication is, essentially, whatever the market will bear. America has the world's best market for cheap generic drugs because generic as well as branded manufacturers are exempt from the price controls that afflict the rest of the developed world. Driving down the cost of generics - or branded drugs - means making more information available to buyers of the drugs, e.g. consumers, physicians, and health plans, who can then shop and bargain for the best prices themselves. Once consumers have enough information to find the best prices, "the profit margins that exist would be a lot smaller," says Medicare Administrator Mark McClellan. That's true, but in the mean time let's remember that without profits there would be no "expensive" drugs to gripe about at all.

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Internet drug sales to Americans may soon become Canada's pain; A task force is studying whether on-line retailing will cause shortages of prescription medicines here
The Globe and Mail, 5-26-04

If the U.S. adopted a national drug importation policy it would effectively mean the end of price controls in Canada - at least at the levels Canadians have come to take for granted. Drug companies have already raised prices in Canada by about 4 percent to account for surging cross-border demand, and Canadian officials estimate that the trade will add C$480 million to the cost of Canadian medications this year alone. There is also the real threat that the Canadian drug market would be swamped by American demand - indeed, a recent study from the University of Texas at Austin found "that if all U.S. residents bought their prescription drugs north of the border, Canada's drug supply would be exhausted in 38 days." Canadian pharmacists are already complaining about drug shortages induced by American demand, and some opponents of cross border trade are demanding export taxes on Canadian internet sales to raise prices and insulate the domestic Canadian market. American policymakers should take note of Canadian unease: large scale drug importation would inevitably either raise Canadian prices to reflect market demand, or lead to a Canadian backlash whereby Canada erected export barriers to protect prices for Canadian consumers. In any event, the monetary gains some U.S. policymakers are expecting from importation would be severely offset by disparities between American and Canadian markets.

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Gene-Therapy Experiment Hints at ALS Treatment
Wall Street Journal, 5-27-04

New therapies often proceed slowly - even more so at the cutting edge of genomic science, where researchers are using genetically engineered viruses to implant new genes in patients whose tissues and cells (either congenitally or due to injury, age, or disease) are unable to function normally. In an experiment described in the British journal Nature, gene therapy used in mice helped to slow the onset and progression of a disease very similar to Lou Gehrig's disease (amyotrophic lateral sclerosis), a motor neuron disease that afflicts thousands of patients every year, and for which there is no cure. Researchers from Oxford BioMedica PLC and the University of Leuven (Belgium) used the horse virus stripped of its genes to serve as a vehicle for a gene designed to produce VEGF, a growth factor they hoped would prevent the destruction of nerve cells characteristic of ALS. The experiment used mice that were already afflicted by motor neuron disease; a significant showing since most patients with ALS aren't diagnosed until after the disease has ravaged their own nerve cells. The researchers found that their VEGF gene therapy increased life expectancy in the mice by 30%. The field of gene therapy is still in its infancy, but researchers are excited by the finding and hope to move to human trials in 2006. While the initial costs of R&D in biotechnology can be high, and the gains frustratingly slow to a public conditioned to expect miracles-on-demand, this article reminds us that our health care investments today will produce a revolution in the not-too distant future.

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Increases in Health Care Premiums Are Slowing
The New York Times, 5-27-04

Prescription drugs, while representing a significant out-of-pocket cost for consumers, are in reality only a small fraction of total health care spending. Health insurance premium increases, on the other hand, represent a much larger portion of health care spending (particularly for employers) but have received much less attention in the health care debate lately - although perhaps we ought to pay more attention. At least some of the double digit increases in recent years have come, this article suggests, as part of a phenomenon known as the "underwriting cycle" where insurance companies keep prices artificially low to attract consumers when competition is strident, but then raise prices once competition eases. Competition, it seems, is heating up again between for-profit and not-for profit insurers for new customers, leading to smaller premium increases, and, in some cases, actual rebates. Adding to the nascent surge in competition is the fact that commercial companies have set large goals for new members and are offering cheaper prices to lock in market share. While consumers, particularly elderly consumers, are frustrated by high-health care costs, policymakers need to recognize that health care inflation is a complex problem that won't be solved by quick fixes like drug importation, price controls, or restrictive drug formularies.

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State ready to tighten rules on drug wholesalers: Effort follows surge in fake medicines
The Star-Ledger, 5-27-04

While policymakers debate drug importation, evidence is mounting that this is a policy that is best pursued, if at all, with extreme caution. In New Jersey, the state health department is moving to tighten controls on pharmaceutical wholesalers, a niche in the nation's drug supply chain that is vulnerable to counterfeit and stolen medicines. Last year, federal regulators seized 200,000 bottles of the fake drug Lipitor, a widely used cholesterol pill. Although the FDA regulates drug manufacturers, state regulators monitor wholesalers, leading to the reality that the drug distribution system is only as strong as its weakest regulatory link. This investigation, by the Star Ledger, found that New Jersey's laws were riddled with loopholes, oversights, and infrequent inspections. A Bergen County police official noted that the "organized crime is moving into this industry" and that state regulations needed teeth before they would be effective. This is a sobering finding in an age of bio-terrorism and international criminal cartels.

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Drug execs say Europe price falls hurt investment
Reuters News, 5-27-04

Thanks to price controls, Europe's once great pharmaceutical companies are faced with a stark choice, growing ever starker: migrate or die. Over the last decade, European pharmaceutical companies have been driven to the U.S. because it is the last developed market without price controls on prescription medications. The U.S. rewards innovators with the best profits in the world and R&D follows profits ruthlessly. Since 1998, 70% of sales from newly released medicines were generated in the U.S. - versus just 18% in Europe. With Europe expanding to 25 nations from 15 this month, poorer European nations will put even more pressure on pharmaceutical profits through parallel trade (where drugs are imported from low-cost markets like Greece to higher cost markets like Great Britain), adding to an estimated 2 billion pounds in lost profits every year as matters stand now. Although American policymakers have taken to demonizing American pharmaceutical companies, the reality is that, like in global defense, the U.S. provides a pharmaceutical security blanket that benefits the entire world by driving innovation and investment in this critical sector.

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Vioxx Heart-Risk Evidence Mounts - Users of Merck's Painkiller Had More Hospitalizations Than Those on Celebrex
Wall Street Journal, 5-28-04

Where there are multiple drugs available to physicians and patients, more options are available, and physicians can minimize the risk profile of patients to particular medications. A study funded by the Canadian government placed two patented drugs (Vioxx and Celebrex) in head to head competition, along with a related generic drug, ibuprofen. This class of painkiller used by patients suffering from arthritis is called nonsteroidal anti-inflammatory drugs, or NSAIDS. The researchers found that elderly people taking Vioxx has an 80% increase in hospital admission for congestive heart failure for patients not taking any NSAIDS. The rate for ibuprofen was 40%, while Celebrex had the same rate for people who weren't taking any NSAIDS at all. While the absolute rate even for Vioxx was low - about 1 for every 400 patients - researchers thought it was still significant enough to warrant concern. While this study may not be conclusive, it shows how markets, by encouraging manufactures to produce multiple drugs even in the same class of medications, offer patients safety benefits and the ability to document improvements over older generics.

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