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Executive Summary

Pharmaceutical Manufacturers Association member firms will provide pricing and marketing information from the past three years to Rep. Waxman (D-Calif.) in response to a request made by the House Energy & Commerce/Health Subcommittee chairman at a Feb. 22 hearing on international drug prices. Waxman asked Merck, Pfizer and Upjohn "to furnish this subcommittee a list" of "the prices charged for each of your drugs to all purchasers," including hospitals and HMOs, for each of the last three years. He also requested information on the amounts each company spent each of the last three years "on drug advertising, promotion and marketing and the percentage that figure represents of the total sales of your company." He noted that drug companies normally protect such data as confidential and proprietary. Merck U.S. Human Health Division President Richard Lane replied: "I believe [Merck] would" provide the information requested. Pfizer Exec VP Robert Neimeth said that he would have to "ask my people in New York" but that, "as an individual," he could "see no reason why we would not do it." Upjohn Vice Chairman Ley Smith answered, "Yes." The California Democrat scheduled the hearing to discuss independent reports on the greater prices U.S. consumers pay for prescription drugs as compared to consumers in Canada and Mexico. Waxman also asked PMA President Gerald Mossinghoff to submit the same pricing and marketing information from "the 15 largest drug companies" not represented by witnesses at the hearing. The congressman asked that the 18 manufacturers supply the information "within 15 days." Noting that the industry has been "willing to make its research costs public," albeit in "unaudited" form, Waxman said it will be "critical" for Congress to know "prices charged to large purchasers" and "the costs of advertising and promotion." Rep. Stark (D-Calif.) submitted a written statement to the subcommittee urging support for his bill (HR 916) to establish a Canadian-style prescription drug price review board ("The Pink Sheet" Feb. 15, p. 10). Introduced Feb. 16, the Stark bill authorizes the board to review pharmaceutical prices and to shorten the patents or reduce the tax credits applicable to products whose prices are "excessive." Prices would be considered excessive if they are increased more than two percentage points faster than inflation or if the price is out of line with the costs of researching, developing, producing and marketing the product. The Canadian price board is "proven and effective" in keeping Canadian drug prices lower than U.S. prices, Stark said. The hearing focused on a General Accounting Office study, released last October, which found that prices for 121 top-selling U.S. pharmaceuticals averaged 32% higher than those in Canada ("The Pink Sheet" Oct. 26, 1992, p. 3). A separate GAO study on the Canadian pricing board was released by Sen. Pyror (D-Ark.) on the same day as the Waxman hearing (see related story, p. 9). Mossinghoff contended that legislation to control prescription drug prices would be fatal to the biotechnology industry. "The specter of government-imposed price controls would be a serious wound to the established [pharmaceutical] companies, and it would be a death knell for the biotechnology companies," Mossinghoff said. "I don't think anyone's going to put risk capital into a company knowing the odds are probably 50-1" against developing "a blockbuster at the pharmaceutical level" if "there's going to be a government board that's going to control the prices they charge," he argued. Mossinghoff asserted that the essential issue for pharmaceuticals, whether they carry a Canadian or a U.S. price, is access. The challenge is "providing access to people who can't afford" prescription drugs, he said. "We want to work with you on that. We think that drugs must be covered in any managed competition health care reform, and we want to work with this subcommittee to make sure it's done in a responsible way." Waxman replied that he appreciated Mossinghoff's comment as "constructive," but he cautioned that the industry must be prepared for a system in which companies no longer have carte blanche to charge any price they wish for their products. "We want to work with you," the congressman said. "But it has to be understood that any health care system that we have in this country, and I hope that health care reform includes prescription drugs, cannot be based on American consumers paying whatever pharmaceutical companies want them to pay, especially when they have a monopoly granted to them" under patent law. Drug pricing "cannot just be whatever the companies want, it has to be something that's fair and reasonable and...affordable." GAO Health Financing and Policy Issues Director Janet Shikles testified that "almost half" of the 121 drugs examined in the October report, which are sold in the same form by the same manufacturer in both the U.S. and Canada, "cost over 50% more in the U.S." GAO has not yet completed a companion study that will compare U.S. drug prices to those in Europe. The hearing also featured testimony by Families USA Executive Director Ronald Pollack on his organization's survey showing significantly higher pharmaceutical prices charged in U.S. pharmacies as compared to prices charged in pharmacies directly across the Mexican border. Massachusetts Institute of Technology Sloan School of Management Professor of Applied Economics Ernst Berndt criticized the GAO study as exaggerating the differential between U.S. and Canadian drug prices. "While I expect some differential, the 32% is simply too large," Berndt said. "In my view, the GAO study is biased, and its underlying data are dubious at best." Waxman asked a panel consisting of Berndt, University of Minnesota PRIME Institute Director Stephen Schondelmeyer, PhD, and representatives of Merck, Pfizer and Upjohn whether anyone disagreed "that drug prices are higher in the U.S. than they are in Canada." Pfizer's Neimeth, president of the firm's International Pharmaceuticals Group, acknowledged that Canadian prices are less expensive "in absolute terms," but, he said, in terms of "ability to pay, I'm not quite sure." Merck's Lane contended: "For Merck drugs, Canadian citizens and American citizens pay about the same." Mossinghoff contended that the health care system should rely "on market forces to restrain costs" of pharmaceuticals by adopting a managed competition strategy that provides outpatient drug coverage while "maintaining quality of care."

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