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Executive Summary

Rep. Waxman (D-Calif.) is expected to schedule a hearing before his House Energy & Commerce/Health Subcommittee on U.S. prescription drug prices, possibly before the 103rd Congress convenes or soon thereafter. The California Democrat has requested two reports by the General Accounting Office on pharmaceutical prices. The first, issued Oct. 21, compares manufacturers' 1990 prices in the U.S. and in Canada. The second will compare U.S. and European drug prices. In an Oct. 21 statement on GAO's comparison of U.S. and Canadian prices, Waxman said: "It is time for the U.S. to get on the bandwagon" of countries like Canada, which have "found ways to control prescription drug prices." Waxman is resuming an active role in the pharmaceutical pricing issue, which was the subject of a number of hearings of his Health Subcommittee in the mid-1980s. In addition to his impending hearing plans and his involvement in the GAO studies, Waxman on Oct. 19 videotaped an interview for public TV on the high cost of prescription drugs. He was scheduled to appear on the program "Techno-Politics" Oct. 24 with Pharmaceutical Manufacturers Association President Mossinghoff and Senate Special Committee on Aging staffer John Coster. Waxman's reinvigorated role in the issue gives Sen. Pryor (D-Ark.), chairman of the Aging Committee, an important ally in the House who can help move legislation designed to constrain pharmaceutical prices. The study compared the prices of 121 of the 200 most frequently-dispensed prescription drugs in the U.S. with the prices of the identical drugs sold in Canada. The remaining 79 drugs were excluded because they were not sold in identical form and under the same conditions by the same manufacturer in both countries. The five most commonly prescribed drugs in 1990, in order -- SmithKline Beecham's Amoxil, Burroughs Wellcome's Lanoxin, Glaxo's Zantac, Wyeth-Ayerst's Premarin and Upjohn's Xanax -- were priced, respectively, 5%, 16%, 30%, 162% and 183% higher in the U.S. than in Canada. The report states that while 23 products marketed identically in both countries were priced lower in the U.S., 16 were up to 19% higher, 27 were 20%-49% higher, 28 were 50%-99% higher, 24 were 100%-499% higher and three were higher by 500% or more. The three products with the highest price differentials are marketed by subsidiaries of American Home Products: Robins' anti- emetic Reglan, and two Wyeth drugs, the anxiolytic Ativan and the anti-angina agent Isordil. Respectively, they were priced 545%, 702% and 967% higher in the U.S. than in Canada, GAO found. Calling the GAO study "flawed," an AHP spokesperson acknowledged that "there is a difference" between the company's U.S. and Canadian prices, but "the issue is how much and for what reason." AHP said the report's percentage differentials are based on the U.S. wholesale acquisition cost -- which the company compared to AWP, an often inflated price -- and prices paid by the Ontario Drug Benefit Plan, which obtains manufacturer discounts. The company maintained that its "depot prices" for U.S. purchasers would have been "more comparable" to the prices listed in the report for Canada. For example, the Ontario plan price reported for Isordil is an "artificially low reference price in Canada," the company said, maintaining that "the average Canadian wholesaler pays more than twice" the per-tablet price cited by GAO. AHP also maintained that Isordil is priced "very competitively in the U.S." at "30%-40% below the nearest competitor." Regarding Premarin, AHP said the U.S. price amounts to .36 per day, which is "substantially below" the daily price of Ciba Geigy's Estroderm and is comparable to the .25 per day price paid by the plan in Alberta, Canada. The company also said its domestic prices must fund its growing R&D investment in the U.S. The 121 products "matched" by GAO represented 54% of all prescriptions dispensed in U.S. pharmacies during 1990 and 39 of the 50 most commonly-prescribed drugs. The 121 drugs were priced an average of 32% higher in the U.S. than in Canada. Eighty-one percent of the products were more expensive in the U.S., and almost half of the total was more than 50% higher in the U.S. On a per-package basis, the American price to wholesalers ranged from being 44% lower to 967% higher than the Canadian price, the report states. The study also notes that U.S. hospitals, health maintenance organizations and other favored purchasers obtain pharmaceuticals at prices "substantially below the typical wholesale price." GAO found that two principal price constraints exist in Canada but not the U.S.: federal regulations and provincial drug benefit plans. The 11 provinces' health plans offer manufacturers volume buying efficiencies, and they can exclude overly-expensive drugs from coverage. The report notes that the wisdom of proposals for the U.S. to adopt drug price controls like Canada's has been debated. Without taking a position, GAO pointed out that critics of drug price regulation contend that such a plan would depress R&D and slow introduction of new therapies. Others maintain that "price regulation may have little effect on the development of innovative products but would instead simply reduce drug company profits and marketing outlays," GAO added. The report also notes that the U.S. represents "31.5% of pharmaceutical sales in [the 24] countries belonging to the Organization for Economic Cooperation and Development (13 times more than the Canadian market)." Consequently, GAO said, price regulation in the U.S. "would have a much more adverse effect on manufacturers' revenues than would similar regulation in Canada." In a Sept. 30 cover letter to the report, GAO Health Financing and Policy Issues Director Janet Shikles told Waxman that "manufacturers' prices to wholesalers for identical prescription drugs are typically higher in the U.S. than in Canada," and the differences "are largely attributable" to Canada's federal and provincial government efforts "to restrain drug prices, not to any differences in manufacturers' costs" between the two countries. The report states that "government regulations and reimbursement practices contribute to lower average drug prices in Canada." Consequently, when "setting prices, manufacturers of patented drugs must conform to Canadian federal regulations that review prices for newly-released drugs and restrain price increases for existing drugs." Sen. Pryor has floated legislative proposals to establish a similar national drug price review board. Although Pryor has not formally introduced a bill, he may find an environment more hospitable to such legislation in an administration headed by Democratic presidential candidate Bill Clinton, who has discussed the need for "global" health cost limits. GAO further stated that health plans run by Canada's provincial governments "act to constrain manufacturers' discretion in price-setting." Through the plans' reimbursement of their enrollees' purchases, the agency said, "the provinces exercise concentrated buying power to obtain low prices. In addition, provincial officials can remove drugs from their list of reimbursable drugs if the manufacturers' proposed price increases are considered to be too high." U.S. factory prices were obtained "from the wholesale acquisition cost (WAC) listed as of May 1, 1991 in the Medi-Span Master Drug Data Base-Select," the report states. Canadian factory prices were obtained "from the Best Available Price (BAP) listed in the February 1991 Ontario Drug Benefit (DB) Formulary." To identify the possible causes of price differentials, GAO said it "interviewed government officials, industry representatives, academic researchers and pharmaceutical industry experts in both the U.S. and Canada." The report focused solely on manufacturer price policies, not on wholesaler or retail pricing. GAO cited a 1990 study by the HHS Inspector General's office, which concluded that wholesale prices for a sample of drugs were "significantly" higher in the U.S. than in Canada. However, GAO said the HHS study did not determine the portion of the price differential attributable to manufacturers. In an Oct. 22 statement, the Pharmaceutical Manufacturers Association called the GAO report "misleading" and its methodology "flawed." PMA said "GAO compared the best price available from the Ontario Drug Benefit Formulary with the 'sticker price' for U.S. products," that is, the price offered in the U.S. "before application of rebates and discounts." The association cited a July 21 letter to GAO by IMS America President Thomas Gardner, who maintained that "prices are not completely comparable and that the report almost certainly overstates actual U.S. prices relative to Canadian prices." Gardner said the report compares Ontario's "best available retail-market price with a U.S. worst available price." PMA added that the report does not allow for U.S. rebates under Medicaid or discounts negotiated by U.S. purchasers, and it ignores the fact that "one-third" of the 121 products are available generically and that price controls have eroded R&D by the Canadian pharmaceutical industry. During the period in which Canada imposed compulsory licensing, 1969-1988, "Canadian R&D produced only one vaccine and virtually no drugs that were sold internationally," the association said. Sen. Pryor said the GAO report "confirms what I have been saying all along about the pharmaceutical industry: that we have given them a license to price gouge the American public, and it is time to revoke that license." The drug industry receives "unprecedented and unparalleled multi-billion dollar non-research tax breaks, hundreds of millions in marketing tax deductions and...billions of direct and indirect federal dollars to help research and develop new medications," yet it charges Americans "the highest prices in the world for prescription medicines," Pryor said. "It is not fair."

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