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Bare-Knuckle Politics Leads to Bad Public Policy

Peter J. Pitts
Medical Progress Today
October 20, 2005

What does "D.C." stand for? District of Columbia Mayor Anthony Williams has signed legislation passed by the D.C. Council that makes it illegal for pharmaceutical companies to sell prescription drugs at an "excessive price" in our nation's capital. If companies don't comply, civil penalties may be applied. Medically speaking, the council members may need to have their heads examined. They certainly didn't get their heads around a central issue: What aspects of drug pricing do pharmaceutical companies control? Pfizer doesn't own a chain of pharmacies. Eli Lilly doesn't have a stake in CVS. And, in case you didn't know, there is no such thing as a manufacturer's suggested retail price for prescription medicines.

In the simplest path to market, a drug company sells its products to a wholesaler, which sells them to a pharmacy. Often there are multiple resellers and repackagers in between. Everyone along the supply chain marks up the price to make a profit. By the time you receive your prescription at the pharmacy, it may be priced at upward of 40% over the initial price charged by the drug maker. In fact, an April 2000 report from the U.S. Department of Health and Human Services notes, "Retail markups in the range of 20% to 25% over the pharmacy's acquisition price are typical."

However, since the D.C. Council is made up mostly of lawyers (including the genius who introduced the legislation, David Catania, who works at the powerful Washington law firm of Akin Gump Strauss Hauer & Feld) it's not surprising they've chosen to focus on the deepest pockets - the pharmaceutical industry. It wouldn't look good, after all, if their legislation forced local pharmacies to close.

What does "D.C." stand for? Based on the current disposition of the D.C. Council, it stands for "Drug Catastrophe." Some will counter that, right or wrong, drug companies have gotten the reputation of robber barons who dramatically inflate the prices they charge for their products. And that it's not the retail pharmacies that have profit margins hovering between 18% and 20% every year.

But why should this matter? Some people don't like pharmaceutical companies, others don't like food companies, and still others aren't fond of insurance firms. If you have a market-based economy, you play by market rules. "Free market" doesn't mean that product and services are free. And demanding that manufacturers reduce their price so that the cost to the end user declines - without equally mitigating the profit margins on the middle and end of the supply chain - simply makes no sense. It's probably also illegal, and a court challenge is expected by all parties.

If what Mr. Catania and his allies really want are price controls (which is precisely what they want - and have said so), then they should be honest and move publicly to impose price controls. Unfortunately, in the world of bare-knuckle politics, knuckle-headed schemes often emerge for no other reason than to attract media coverage. Serving the public interest? That's for suckers. In this respect, "D.C." also means "Disturbing Conduct."

Similarly, what does "M.D." stand for? Nope. Unfortunately, it means "misdirected."

Over a year ago, the president of the Montgomery County Council in Maryland, Tom Perez, introduced a resolution that would allow the county to purchase "drugs from Canada." According to The Washington Post, Mr. Perez "anticipated offering the benefit to 85,000 employees and retirees, including 27,000 affiliated with the school system. But the plan suffered a setback last month when the county school board declined to pursue a contract with Canusa, a privately held health benefits company based in Windsor, Ontario, largely because of concerns that the program would violate federal law. So now, Perez is focusing on the county government, with 12,500 workers and retirees, in part because it is the entity over which the council has direct control."

Now Mr. Perez is going to use local police, firefighters and the other hard-working members of the Montgomery County civil service as guinea pigs in a lab experiment he designed out of blatant political ambition. And as far as county retirees are concerned, I wonder how much time (oops - times up) he's spent educating them on the Medicare Part D benefits to which they are entitled.

Meanwhile, Canada's minister of health has made it clear that he will not allow his nation to become America's drug store. That's why Canadian Internet drug marketers - profiteers masquerading as pharmacists - now need to get their drugs from Europe. And that means Latvia as well as Great Britain, and Portugal as well as Germany.

Mr. Perez's plan would not deliver "the same" drugs that Canadians get at their local pharmacies. That's a fallacy proven 100 times over and conveniently and irresponsibly ignored by the County Council president. And since the Council of Europe just released a new study revealing the bad news about the European Union's fast-growing problem of counterfeit drugs, it's good news that the Montgomery County school board did their homework and sent Mr. Perez and his foolish notions to detention.

Peter J. Pitts is a former Associate Commissioner at the Food & Drug Administration and Senior Vice President for Global Health Affairs at Manning, Selvage & Lee.

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