Thursday, March 12, 2009

Health Care Reform and Pharma: Keep Industry "Healthy Enough"

Last night, former President Bill Clinton was interviewed on CNN about health care reform. Health policy junkies should check out the whole thing. After all, we're the only ones who think "failed health care plan" as the main legacy of the Clinton era. (Watch the CNN video here; read the transcript here.)

For biopharma, companies, though, the interview underscores the sense that much has changed since 1993--when "pharmaceutical profiteers" were the all-purpose villain in the health care debate--and 2009, when Big Pharma quite literally has a seat at the table on reform. (Two, actually).

But it is also a reminder that this ain't the Bush years.

The interview was a reunion of sorts, with CNN's Sanjay Gupta posing the questions. Gupta began by noting his own background as an advisor to the health care reform task force, and adding that he withdrew his name as a candidate to be surgeon general under Obama. When Gupta asked about "drug costs" and how to bring them down, we sat forward in our seats.

Here is what Clinton said in response...

"There is a very simple answer to this, which is that we have made a bargain with our pharmaceutical companies. We've said to them for decades now, 'We love having you in America. We're proud of you. We know you have to spend a lot of money on research and then you market the drugs and all. So we will eat our research and development costs in American prices so that you can sell exactly the same drugs you sell to us for less money in Canada and Europe.

"For example, our AIDS clinic down the street here in Harlem, the taxpayers pay $10,000 a year to treat people with the big pharmaceutical companies' AIDS medicine. That medicine costs about $3,500 a year in Canada and Europe, countries with per capita incomes as high as America. Keep in mind, Europe has a lot of very successful drug companies and they don't do this.

"We need an honest, open, clear dialogue admitting that we're proud of these companies. They've got tens of thousands of employees. They've done a good job for America. They've saved countless lives. But we just can't go on subsidizing [more than] our other competitors can.

"So how can we reach a different arrangement so that we keep the drug companies healthy enough and we keep them developing new medicine?

"The system we've got is not working very well. They don't have a lot of new medicines in the pipeline, partly because so many new advances, particularly with the sequencing of the human genome, have led to patents on smaller and smaller and smaller components of what ultimately becomes a blockbuster drug. So a lot of new drugs are not coming because we haven't reexamined how the patent process and the research process are working together, or not working.

"Meanwhile, we keep eating all these costs, and countries just as wealthy as we are are getting the same drugs made by the same people for less money, which is why there was so much [discussion of] allowing re-importation from Canada.

"What I recommend is, let's don't pretend these drug companies are bad people. They've done a lot of good for us. But let's be honest that America is no longer so dominant over Canada and Europe and Japan that we can afford the whole subsidy.

"One good place to start is what President Obama has proposed, letting the federal government do what I do for AIDS drugs, letting them bargain for lower prices for well-established medicines bought in bulk for the benefit of our seniors. That's a good place to start. And we just need to work out a new deal with them so they can do well.

"But, you know, for most of the 1990s and the early part of this decade, they earned 18 percent, which is a huge return. You know, Wal- Mart is, what, 5 or 6 percent. And it is fascinating to see that at the same time, because of a lot of these factors relating to patenting and scientific advances, the number of new drugs in the pipeline seems to be slowing down.

"So we need to examine both how we can both get the benefits of genomic advances and how we can lower the cost to the consumers."


katherine noyes maclennan said...

perhaps pharma can do what many of us are doing right now. for example...ive decided to hold off on buying that unnecessary pair of leopard skin pumps. they could put a hold on buying hospital department lunches (that only hungry nurses actually attend). im not buying unnecessary household items if i already have them (new set of yummy sheets). Maybe they could stop making tons of flashy pens and seatbelt cutters? Most of us have a drawers full of their cracker jack surprise silly toys anyway...

Anonymous said...

In Europe pharma companies dont spend all their money on advertising on Tv in every magazine etc...

Why should Europeans pay for the cost of advertising in the US in their drug costs?

Take out advertising and teh costs would be very similar

Anonymous said...

If you think getting rid of pens and TV advertising would bring the cost of American drugs down to the cost of European drugs then you must have failed math class. The United States subsidizes drug development for the ENTIRE REST OF THE WORLD.

It's a ridiculous side effect of our obsession with the free market and most of the rest of the world's over reliance on price controls. If all the big industrialized countries found a roughly similar middle ground, Americans could pay less and everybody else would have to pay a bit more. Pharma would continue to innovate and healthcare would be less of a tinderbox issue.

Anonymous said...

to "katherine noyes maclennan said..."

uhmmmm.... you do realize all of what you are bravely recommending has already happened right? dont let the facts and current events get in the way of making an internet comment!!!!

no wonder why we cant have a real discussion on HC reform - no one chooses to use facts.

layosh said...

There are two issues here: one, the new pharmaceuticals are IP protected monopolia. There is no free market with a monopolium entrenched. Big Pharma needs it, considering the abismal productivity it shows regarding the development of new drugs. Second, allowing the free market to be distorted by such monopolia is nothing less than subsidising the industry. Not that bad, considering what the EU does with the aerospace industry. We have increased our share in biotech patents, they got the Airbus.
In twenty years, when the today's dominant patents expire, all goes to China and India, so they will profit too. In the mean time, be prepared: eath healthy, excercise and buy a casket at discount price...

Anonymous said...

There are two big areas of expense where pharma could cut that would actually really save some money (pens are already being cut and are small change, and TV ads don't cost anywhere near as much as:) - sales reps and research, but both would have huge effects on pharma's business. Sales reps are very expensive but nothing else has been shown to be as effective at selling drugs as reps. Research is a risky business, but is the life blood of innovation. And the requirements of clinical trials are getting more and more oneous, so the clinical research expenses will have to continue to increase in order to get approvals. Pharma is looking for a new model of how to run a business more leanly - AZ is outsourcing manufacturing, all of big pharma is licensing in products from biotechs - but no one has cracked the code yet. The answer might be that gross margins and profitablity have to come down, which means the stock prices may be too high for the long term.