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How much to cut drug prices?

On August 20, the Kaiser Family Foundation published the latest results from its poll that tracks health care opinions among American consumers. The pollsters found that only slightly more than four in 10 respondents (42 percent) have a positive view of pharma companies. That ranks the pharma industry near the bottom, with just oil companies below it at 40 percent.

Although people recognize pharma's contributions to improving the length and quality of life (they put pharma in the middle of the pack as far as social contributions), 74 per cent of this sample said Big Pharma is too concerned about making money and not concerned enough about helping people.  Among the remedies, large majorities of Americans in both parties support the following measures:

  1. Requiring pharmaceutical companies to disclose how they set prices (86 percent)

  2. Allowing Medicare to negotiate drug prices on behalf of beneficiaries (83 percent)

  3. Limiting what drug companies can charge for medications to treat serious illnesses (76 percent)

  4. Allowing consumers to get prescriptions filled by pharmacies in Canada (72 percent)

A health policy analyst at the Center for American Progress, Topher Spiro, commented on the results by telling the Associated Press, "[D]rug companies have overreached and their pricing is not sustainable."

It's remarkable that price controls on drugs have emerged as a topic for discussion in a country that in recent years debated whether government should even play a role in health care. In the Journal of the American Medical Association earlier this month, Princeton economist Uwe Reinhardt argued that government has the right to control drug prices because pharma is not a free market competitor.

Instead, pharma companies are shielded from the risks of competitive markets by government-granted monopoly powers such as patents, FDA exclusivity and the prohibition against reimportation. Since they benefit from this government fix, the government also has the right to determine that high drug spending deprives the country of money required for other, socially necessary purposes such as education and infrastructure.

So if price controls on drugs are justified in principle, the question then becomes, "how much to force them down?"

A government considering price controls on drugs must balance the social benefit of lower prices against the need for pharmas to earn the profits that will encourage them to invest in developing new drugs. Professor Reinhardt frames the matter as one of deciding how much to reward pharma investors so they will continue taking a risk that benefits society as a whole.

Viewed from this perspective, he claims there is a good benchmark that allows us to see how much benefit the government bestows on other individuals for taking personal risks on society's behalf. The comparison, he claims, consists of the salaries and benefits the government pays to fire fighters, police officers and members of the armed forces.

Considering the enormous physical harm associated with the risk-taking by those individuals, Reinhardt judges their compensation as quite modest.

Given that pharma's biggest investors take their risks from the overstuffed chairs of hedge fund offices and Caribbean yachts, the benefits they deserve should be no greater.

The other day, a health policy analyst in West Chester wrote the following phrase as part of an email discussion about the Kaiser survey. Public derision of pharma is certainly understandable, he wrote, "Not that consumer opinion makes much of a difference in this debate."

His line provided a shock of recognition because he pointed out that while a sizeable majority of the American public holds pharma in low regard and believes the government should force down drug prices, consumer opinion counts for little.

In almost any other sector where customers consider the products irresponsibly overpriced and regard the industry as unethically greedy, a wave of financial reversals and/or government interference would be sure to follow. In pharma, on the other hand, consumers are the passive end users of drug products because the classic gatekeeper system puts customer decision making into the hands of prescribers, provider networks and payers.

That means in comparison to other product areas, consumers have to be more outspoken and demonstrative on matters concerning their medications. For most products, consumers can act on their preferences by just exercising their "dollar votes," that is to say, merely choosing whether or not to buy something. For prescription drugs, however, that choice is usually not an option.

To satisfy their preferences in regard to medications, people have to act politically — with their doctors and with politicians — and routinely do the kinds of things ordinarily required to achieve political gains. They have to unite, gain popular support through the media and act "expressively" (e.g., demonstrations, protests) as well as instrumentally (signing petitions, voting, organizing others).

When it comes to economic issues such as drug prices, all such politically oriented action is discouraged by the American popular culture and consumer economy. The mass media discourage united action and the other elements of political behavior. Instead, people are encouraged to act individually and to express themselves through their product purchases.

All of this means that it will be very difficult to force pharma into socially responsible behavior. Along with the defense and the petroleum industries, pharma benefits from a fix created by the country's power elite. In the case of defense contractors, the fix was put in place and is maintained by the military-industrial complex. Pharma benefits from the political fix formed by the medical-industrial complex (a term coined by the late Dr. Arnold Relman).

To keep the rigged game working, pharma relies on consumer complacency, distraction, ignorance and an exploitive ideology that has been rampant in the culture for 35 years. The hope for breaking pharma's stranglehold lies in the fact that the purchase and use of its products break through these factors more forcefully than gas prices or gratuitous Middle East invasions.

Although gas prices sometimes bite, they tend to rise and fall. Drug prices, on the other hand, only go up. Even the prices for less expensive generics have been climbing swiftly.

As for Middle East invasions, the country is able to recruit volunteer Reservists, Guardsmen and contractors to conduct those efforts, so only a small segment of the American public is directly affected.

Pharma's products, by contrast, jeopardize everyone's economic well-being and create the threat of personal bankruptcy. The desire for the former and an abhorrence of the latter have been the major reason for America since Plymouth Rock and Jamestown.

Because of that, drug prices are a basic, bread-and-butter issue, the sort of thing that the public eventually forces its politicians to address.

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