PEP, April 2005: Drug costs squeeze benefits

By GREGORY N. HEIRES

Seniors regularly bus to Canada to buy cheaper drugs.

State governments cut Medicaid benefits for the needy as medicine gobbles up a growing portion of their health-care budgets. And employers and unions raise the co-pays of their prescription plans and restrict coverage as they struggle with skyrocketing costs.

Around the country, consumers and drug plans continue to be pinched by the high cost of drugs. With millions of people lacking coverage, the U.S. Congress in 2003 approved legislation to create a new prescription drug benefit. But the new law — the most significant expansion of Medicare since its creation in the 1960s — bans the government from using its purchasing power to negotiate lower prices with pharmaceutical companies.

The prohibition of price controls resulted from a vigorous lobbying campaign by the drug firms. During the 2000 presidential race, the pharmaceutical industry contributed nearly $500,000 to Bush and more than $4 million to the Republican National Committee.

Monopolistic prices
In the absence of government pressure or controls, drug companies set prices as they please. Patents on their products and consumers’ urgent — often life-and-death — need for the medications gives monopoly pricing power to what is already the world’s most profitable industry. So, drug costs are likely to continue their runaway increases in the coming years.

“As a result of the pharmaceutical companies enjoying a monopoly to protect them from competition, the industry defies the basic principles of supply and demand,” said Congress Member John Oliver of Massachusetts, who has proposed legislation to control prices. “This leads to price gouging at a significant cost to consumers.”

Between 1990 and 2000, spending on brand-name drugs in the United States tripled, from $40.3 billion to $121.8 billion.

Expenditures on prescription drugs are expected to double in the next five years, according to an analysis by DC 37’s parent union, the American Federation of State, County and Municipal Employees. Brand-name drug purchases will reach an estimated $414 billion by 2010.

“It’s like we are under attack from a beast with an insatiable appetite,” said Rosaria R. Esperon, administrator of the DC 37 Health and Security Plan, which funds the union’s drug benefit. The DC 37 plan has more than $140 million in reserves, but the inexorable drug price increases are causing an annual shortfall of $50 million.

Over the years, the plan has periodically restructured its drug benefit to cope with rising costs. A year ago, for instance, the plan increased co-payments and adopted new restrictions as it struggled to contain costs.

In an effort to reduce costs, the trustees are studying a number of bids from pharmacy benefit managers to administer the DC 37 prescription drug benefit, a job now done by Express Scripts Inc. Meanwhile, the trustees are also examining other possible steps to find savings.

The pressure on the DC 37 plan reflects the country’s drug crisis. Unfortunately, that crisis is likely to continue until policymakers in Washington and the state capitals wake up and take action to curb the pharmaceutical industry’s control over drug prices.

The practices of physicians, consumer attitudes and the use of medications must also change: While the excessive prices imposed by the rapacious drug industry explain a lot about the runaway costs of medications, growing utilization of drugs is another root of the problem.

Between 1992 and 2002, the volume of medications prescribed by physicians jumped 74 percent, according to AFSCME.

Part of the increase resulted from expensive new therapies. But the growing utilization is also fueled by the aggressive marketing of drug companies, which push their products on consumers through advertising. They influence physicians by providing them with free samples for their patients, inviting them on junkets and bankrolling conferences in attractive locales.

The drug industry uses an army of 88,000 sales representatives to push their products in hospitals and doctors’ offices. The industry funds 60 percent of continuing medical education, significantly influencing the treatment practices of doctors, according to Marcia Angell, former editor in chief of The New England Journal of Medicine and author of the expose, “The Truth About the Drug Companies”.

Unfortunately, as the pharmaceutical industry continues to determine prices and its marketing machine shapes consumption, patients and drug plans will continue to be socked with high bills.