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Selected news articles which highlight important policy issues.

News: Weekly Archives

News for the week of 07-05-2004

Price controls predicted for Medicare drugs
The Philadelphia Inquirer, 7-5-04

One would hope not. Price controls would inevitably dampen investment in innovative new therapies and push the U.S. even closer toward socialized medicine. The problem is not, strictly speaking, that drugs cost more than they are worth, or even more than their fair share of health care costs (which have remained stable over time). The problem is that they are one of the few components of health care costs still borne directly by consumers out-of pocket. In fact, despite the accusations of some activists (Families USA and AARP), prescription drug costs are not rising at an untoward pace: the rate of inflation for prescription drugs is, generally speaking, the same as other health care goods and services.

The problem is that prescription drugs require an enormous up-front investment of risk capital (estimates range from $800 million to $1.7 billion) that must be amortized over the short period of time when products are under patent. The return on investment for companies must be commensurate with the risks they bare, and the risks are substantial. The solution is to work on streamlining the drug discovery process from lab bench to marketplace - using regulatory incentives to lower investment risks, thereby bringing better and cheaper clinical products to market faster. Inflicting price controls on the pharmaceutical industry would have the same effect as inflicting rent controls on housing markets: existing owners and renters might benefit, but supply would stagnate and future consumers would be forced to live with poor quality stock and constant shortages as suppliers exited the market.

The real solution is not to control prices - but to enlarge the supply of quality products reaching market from a variety of different competitors, which will in turn offer lower prices. This is the solution that everyone who is serious about improving health care for all Americans should focus on.

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Drug Cards: Who Will Win The Pot? Seniors are flummoxed - but insurers and distributors see a ripe opportunity
Business Week, 7-5-04

Much has been made of how confusing the prescription drug card program is. Lost in the criticism over the program is the fact that not every buyer of a product needs to hunt for the biggest discount to help push prices down; sometimes it's enough if a few buyers signal the price they're getting to the rest of the market, or if enough buyers band together to increase their bargaining power.

Either way, transparent prices or combining purchasing power can lead to decreased prices marketwide. This logic is part and parcel of the federal Medicare drug benefit, which the government hopes will help seniors cover their drug costs while also lowering the total costs of drug coverage. As this article indicates, large drugstore chains, insurers, and pharmacy benefit managers have rushed to offer a temporary discount prescription drug card to seniors, a program which will end in 2006. But why would all of these groups rush to offer discounts to seniors through a short-lived program that will inevitably cost them money? By bundling subscribers now, these groups hope to benefit when the full Medicare drug benefit takes effect in 2006. But the very act of bundling buyers allows private insurers to demand volume discounts from drug manufacturers, pushing down prices for all seniors. When it comes to effective public policy, it's not always necessary to have the perfect public policy as long as you can put the right incentives into play.

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Gleevec Provides Scientists Clues to More Drugs
Wall Street Journal, 7-6-04

Sometimes knowing why you lose may make you a better winner further down the road. This may be the case with the cancer drug Gleevec, which is a miracle drug for some cancers but is also much less effective against the same cancers when they mutate. Gleevec's impotence against some cancer mutations has led researchers to an even more detailed model of how Gleevec works, why it fails, and consequently, how they can design even better cancer treatments.

Chronic myeloid leukemia, a fatal cancer of the white blood cells, is one of those cancers that sometimes mutates and renders Gleevec ineffective. However, a new compound discovered by Bristol-Myers Squibb (BMS-354825) has showed the ability to overcome nearly every mutation that CML could throw at it. The compound has increased survival in animal studies; human trials are underway and have shown promising results thus far. The final trial results should be presented by year's end.

Gleevec targets a very particular molecular target in cancer cells; mutations of that target lessen the effectiveness of the drug, and can eventually overwhelm it. New "Gleevecs" are "based more exactly on how the drugs attach to their molecular targets and on knowledge of how cancer mutations can change the shape of those targets." BMS-354825 is one of those new drugs, and works by being "sloppier" than Gleevec, i.e. being more flexible in how it binds to the molecular target on cancer cells.

Until now, most drug failures have tragic and fruitless-but advances in basic science have improved to the point where researchers can pinpoint exactly why some treatments suddenly lose their potency and design new compounds accordingly.

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Fitter workers may help trim costs for firms
The Dallas Morning News, 7-7-04

A sound mind in a sound body may become the next corporate management fad. More employers, driven by rising health care costs, have taken to encouraging their employees to embrace healthy lifestyle changes. "As incentives to encourage healthy living, they're doling out cash and discounts in health insurance priemiums - even T-shirts and duffel bags."

Putting more emphasis on healthy living and disease prevention may pay off in the form of fewer medical claims, earlier detection of specific conditions, and a healthier, happier, more productive workforce. One company, Texas Instruments, employees a network of dieticians to help its employees lose excess weight - and funds 90% of the program. At some of its offices, TI also has gyms and exercise classes.

Overall, this may signify a trend where employers provide employees with more incentives to control health care costs - a key to moving away from a passive model of health care, where third parties bear all the costs, to a consumer driven model, where the people who benefit most from treatments have incentives to lower prices and increase quality on their own behalf.

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AIDS Drugs' Fast Rise in Asia Risks Resistant Strains
The New York Times, 7-8-04

The issue of pricing for retroviral drugs remains an issue - but perhaps not the issue it used to be. Prices of AIDS drugs in developing nations have fallen by 90%; nonetheless, only 400,000 of the estimated 6 million patients in the developing world who need these drugs receive them. Why? At least part of the problem is the fact that "poor health systems in hard-hit nations were a major barrier." The underfunded public health sector sector in many developing regions means that even when cheap medicines are available, there isn't sufficient infrastructure in place to effectively distribute them. Or, as one expert observes, "There are countries in Africa that have grants to put people on treatment and not a single person has been put on treatment. If you have a public health structure that is not functioning, you are not going to solve the problem by shoving money at the public sector." Or as one researcher noted, "if there is a proliferation of the generic drugs, as many are calling for, where is the infrastruture to deliver them?"

In fact, all the emphasis on up-ending patent protections to drive down prices may actually distract attention from the infrastructure improvements that make ART therapy effective. For instance, in Asia, an area of the globe where experts are warning that the disease is spreading at an alarming rate, so many generic manufactuers are making ART pills that the there is a real danger that "misuse could create epidemics from drug-resistant strains of the virus." To date, at least 27 Asian companies are making HIV drugs for the local and global markets; still, only 3 companies meet WHO standards, with the rest either not meeting standards or lacking WHO review. Most distrubingly of all, "most Asian countries have far too few doctors and health workers trained to properly prescribe the drugs and monitor their use." Without adequate regulatory oversight and trained health care professionals to administer the drugs and monitor patients, the medications could be improperly utilized or poorly made, leading to weakened treatment regimes that encourage drug-resistant viral strains.

Addressing this imbalance requires recognition that price alone is not the only hurdle to overcome when it comes to treating the virus effectively. More effort needs to go into creating expanded health care capacity in developing nations, and establishing inspection regimes to ensure that generic AIDS drugs provided meet the highest standards - as the FDA has for the U.S.'s own global AIDS funding.

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Pfizer to Offer Deep Discounts On Drugs for Uninsured People
Wall Street Journal, 7-8-04

Pfizer, the largest pharmaceutical company in the world, recently announced a plan to offer discounted Pfizer drugs to Americans without health insurance. Under Pfizer's program, uninsured families earning under $45,000 a year or individuals earning under $30,000 would quality for discounts averaging close to 40% on retail prices.

The program will no doubt be a valuable one and, perhaps, other companies will follow suit. Nevertheless, much more can be done to lower prices by introducing drug development reforms at the FDA; pushing other developed nations to move towards market pricing for drugs by ending price controls; and increasing information to physicians and patients on which drugs produce the most benefit for their cost. Taken together, this would make medicine much more market friendly rather than relying on arbitrary price cuts from manufacturers, which may or may not be sustainable in the long run, and which may not encourage the use of the best medications available to patients.

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Seniors' Prescription Drug Costs: Rx for hope and frustration; Canada offers big savings, but U.S. reimportation bill stalls
Detroit Free Press, 7-10-04

Articles on prescription drug reimportation generally follow the format found here: heart-rending stories about seniors struggling to make ends meet, drug companies pouring millions of dollars into lobbying efforts to prevent drug importation, and the implicit conclusion that if Congress was serious about getting "big savings" for seniors, a prescription drug bill would've been passed long ago over the specious objections of pharmaceutical lobbyists.

Some speed bumps in this theory: the entire Canadian prescription drug market is a tiny fraction of the U.S. market-consequently, even widely expanded access to Canadian drugs would have a negligible effect on total U.S. prescription drug costs. According to an April 2004 report from the Congressional Budget Office examining current Congressional proposals for drug importation, "the importation of foreign-distributed prescription drugs would produce at most a modest reduction in prescription drug spending in the U.S.", something on the order of $40 billion over ten years "or by about 1 percent" of total U.S. costs. (Available online at http://www.cbo.gov/showdoc.cfm?index=5406&sequence=0)

Sound economics, not soapbox rhetoric, will help solve the problem of providing affordable prescription drugs for seniors and others without health insurance coverage. Focusing on prices, and not the underlying forces driving prices (the enormous cost and time required to develop and market a single new medicine) only obscures the real issues as stake and pushes policymakers away from real solutions.

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