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Executive Summary

The Pharmaceutical Manufacturers Association supports universal coverage of the estimated 72 mil. Americans who currently lack prescription drug benefits, PMA states in testimony prepared for the March 29 meeting of the President's health care task force. "While 37 mil. Americans lack basic health insurance, about 72 mil. lack any form of prescription drug coverage," PMA estimates. "Those 72 mil. disproportionately include the elderly and the poor, and that must change," PMA said. "It is the poor and the elderly who can't afford needed medicines who suffer the most." While health care reform rhetoric has focused on reducing drug company profits via price controls, the PMA estimate begins to quantify the substantial positive potential for the industry if the uncovered part of the population can be incorporated into pharmaceutical coverage plans. "Every American should have prescription drug coverage," the PMA statement declares. "Since prescription medicines are vital to the cost-effectiveness and quality of health care, we believe all FDA- approved drugs must be included in the standard benefit package under managed competition." The PMA statement includes the association's recently adopted position in favor of a Medicare Part B outpatient drug benefit as an interim measure until Medicare is folded into a larger managed competition plan ("The Pink Sheet" March 15, p. 3). The potential for sharply increased pharmaceutical unit sales -- through a larger covered population and induced utilization -- has not escaped members of the Clinton health care task force looking into the drug cost issue. One of the calculations that the Clinton group is believed to be examining is how to balance the likely increased unit volume with pricing patterns. The task force is understood to have been asking drug company officials for estimates on the increased unit use if third party coverage were to be extended to those currently uncovered individuals. "We supporting folding Medicaid into the managed competition system," PMA declares. "If Medicaid is to remain free-standing, we support Medicaid prescription drug coverage up to at least 100% of the federally defined poverty level. On average, the states now only provide benefits at about 40% of the poverty level." PMA VP Robert Allnutt is representing the association at the March 29 meeting. Allnutt will be part of a panel including Generic Pharmaceutical Industry Association President Dee Fensterer, NARD Exec VP Charles West and Genentech President & CEO Kirk Raab, speaking on behalf of the Industrial Biotechnology Association. The drug panel is the seventh of 12 panels scheduled to participate in the task force meeting. A total of 65 organizations are slated to appear. Each panel has been given one question to which each organization was asked to respond orally in three minutes. Each panel is being allotted about one hour. Trade associations were allowed to submit lengthier written statements for the record. The drug panel was asked: "Why are drugs more expensive here than overseas?" PMA's answer addresses two areas: price variations between the U.S. and industrialized countries and between the U.S. and "developing nations." "In the past, drug prices in industrialized countries tended to vary fairly widely based on local market conditions," Allnutt's testimony states. "That is changing rapidly. We have submitted a study to [White House senior policy advisor Ira] Magaziner that shows introductory prices in recent years to be virtually identical in the U.S. and Europe." The statement continues: "Exchange rate fluctuations on their own can cause vast differences in product prices." PMA cites a Battelle study that concluded that a product introduced in several countries at the equivalent of $1 in 1980, would have the cost equivalent of 35[cents] to $1.77 in various countries by late 1991 even if the price had never been changed. The PMA response reiterates other PMA arguments used on this issue, stating that: "Of the 20 most prescribed drugs in 1991, 15 were priced the highest outside the U.S."; "U.S. per capita expenditures on pharmaceuticals are about average for an industrialized country" when measured as a percentage of health care expenditures or in terms of how many hours of labor are needed to purchase annual drug supplies; and "a number of countries have controlled prescription drug the expense of pharmaceutical innovation." "With regard to developing countries," the statement continues, "many countries, including Mexico until quite recently, allow patent pirates to freely manufacture and sell patented drugs...This results in unrealistically low prices." Moreover, PMA continues, "In such countries, and in any country with an extremely low standard of living, a company is faced with the choice of marketing its product at a concessionary price or denying patients in that country the medical benefits of the product." GPIA has a strong response to the task force question about international comparisons: the generic drug market in the U.S. is generally more competitive than many overseas markets. In order to further encourage generic substitution, GPIA is likely to propose to the task force that drug coverage reimbursement rates for multi-source categories be set at a median of the cost of the brandname and the generic. PMA points out to the task force that it twice has asked for the opportunity to control its own prices voluntarily. "In December, the PMA Board of Directors unanimously directed the staff, acting within the narrow constraints of the antitrust laws, to urge President-elect Clinton to seek voluntary, independent pledges from each company to hold price increases at or below the nation's inflation rate," PMA said. "The administration has not yet seen fit to take this step." The drug association panel is not the only one being asked to address a pharmaceutical pricing question: Panel 8, consisting of hospital associations including the American Hospital Association, the Federation of American Health Systems, the American Protestant Health Association, the Catholic Health Association and the National Association of Children's Hospitals, was asked: "Why does an aspirin tablet cost $5 in a hospital and what can you do about it?" Other panels will discuss issues of relevance to their associations. Panel 1, consisting of the National Council of Senior Citizens, Families USA, the National Committee to Preserve Social Security/Medicare, the Consortium of Citizens with Disabilities and the American Association of Retired Persons, was asked: "Given the need to control costs, how can we incorporate long-term care into a comprehensive health reform package?" Panel 6, consisting of health insurance associations, will answer the question: "Why do insurance companies use pre-existing conditions to determine who to cover?" Panel 5, consisting of the American Medical Association and other physicians groups, was asked: "What can we do to ensure immediate control of cost while ensuring quality care and physician choice?"

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