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Rx PRICES SHOULD BE NEGOTIATED INSTITUTIONALLY, NOT NATIONWIDE OR STATEWIDE, PMA EXEC VP ALLNUTT TELLS PRESIDENT’s HEALTH CARE TASK FORCE HEARING MARCH 29

Executive Summary

Prescription drug prices provided under a national health system should be negotiated institution-by-institution rather than on a national or statewide basis, Pharmaceutical Manufacturers Association Exec VP Robert Allnutt maintained at a March 29 public hearing of the President's Task Force on National Health Care Reform in Washington, D.C. "Rather than restrict either drugs or pricing at a national level or a statewide level, it is much better" to leave drug price negotiations to "the individual institutions," Allnutt said. Each institution "probably" could obtain lower prices than could be negotiated nationally, he asserted. Allnutt was responding to a question from Treasury Secretary Lloyd Bentsen, who noted that the pharmaceutical industry opposes price controls. Bentsen asked how the industry would react to negotiating prices with health insurance purchasing cooperatives (HIPCs) or a national price review board, two features of health care reform being evaluated by the Clinton Administration. "We believe that it is much better, and you will find a much more economical system, once the [managed competition] system is in place," Allnutt said. "If the market is left to function, I think you will find ferocious price competition in an area where 10 to 15 years ago there was very little," he continued, adding that "today, there is quite a bit [of competition] because of the growing volume of care provided by HMOs." HHS Secretary Donna Shalala asked why the Clinton Administration should "have confidence in" a system lacking central control in light of the industry's price increases during the 1980s. "What you have seen in the past was a system...[with] little in the way of true competition," Allnutt replied. Today, because manufacturers compete for sales to managed care organizations, "you find a lot more price restraint. That's a good part of the reason that you see price increases in the pharmaceutical industry much lower now that they were just two or three years ago." The PMA exec added that "during the last two years," new drugs being introduced in therapeutic categories where they compete against existing products are typically priced well "below the market leader." The imposition of price controls would irreversibly damage the industry, Allnutt argued. On the other hand, "if you trust us and you are wrong," and managed competition alone does not work to restrain drug costs, "you can move quickly to change that" by imposing price controls later, he suggested. Generic Pharmaceutical Industry Association President Dee Fensterer maintained that only the brandname drug industry is free from price controls; generic drug prices are subject to upper limits under Medicaid, she noted. "Medicaid's two-tier reimbursement system has been called the only prescription drug coverage program in the country that provides an incentive to dispense higher-cost, brand multisource drugs," Fensterer asserted. "Medicaid now reimburses pharmacists $67.36 for 100 tablets" of Wyeth-Ayerst's Inderal "but pays them only $2.33" for generic propranolol. Any national health care plan should pay for multisource drugs at a single level, regardless of brand, to encourage generic substitution, Fensterer urged. "To take advantage of generic competition, the U.S. must do one simple thing: stop reimbursing two pharmaceutical industries for the same product at two different price levels." Fensterer also contended that the generic drug industry is much more competitive and price sensitive than the brandname industry. To illustrate her point, she cited preliminary data from an ongoing study. The data shows "that the 1988 wholesale price for 100 tablets of Inderal (80 mg) was $33.97, while the generic version cost $4.00," she said. "By 1992 the price of the brand had increased 51% to $57.36 while the price of the generic had decreased 54% to $1.84." NARD Exec VP Charles West urged the task force to eliminate "discriminatory" pricing practices within the prescription drug distribution system. Speaking for the Community Retail Pharmacy Health Care Reform Coalition representing his independent pharmacy group and the National Association of Chain Drug Stores, West said one way to establish fair pricing is "by adopting the current average manufacturers price as the price" for each product, subject to discounts only to the extent they reflect "legitimate economies of scale." West said "multi-tier prices are the principal cause of higher prices to community retail pharmacies and to most American consumers." Community pharmacies pay higher pharmaceutical prices because manufacturers cost shift to the retail market to compensate for price discounts provided to "hospitals, mail order pharmacies, HMOs, nursing homes, clinics and others," West said. The discounts "are not based on volume purchases" and "are not being passed on to the consumers or to the payers in these settings." American Pharmaceutical Association Exec VP John Gans urged that the national health care system include a pharmacy benefit -- involving pharmacy services as well as pharmaceuticals -- not just a drug benefit. Speaking for APhA, the American Society of Hospital Pharmacists and the American Society of Consultant Pharmacists, Gans said pharmacy services can produce savings for a pharmaceutical benefit by improving patient compliance with prescription drug regimens and averting prescribing and dosage errors. "Pharmacists in a variety of practice settings currently are empowered to work with other health care colleagues and patients to provide quality, cost-effective pharmaceutical care," Gans noted. Such care "requires access to relevant patient-specific information and appropriate incentives in the structure of pharmaceutical prices and reimbursement systems which are not currently available in all settings," he said. "It is clear that these models need to be extended" nationwide. Genentech President & CEO Kirk Raab, representing for the Industrial Biotechnology Association, said biotech companies "recognize the inequities" in the current health care system and "support increased access and recognize the importance of cost controls." However, Raab said, biotech firms already "have demonstrated" cost containment through their pricing policies. Referring to the question posed by the task force to the panel regarding the comparatively higher prices of drugs in the U.S., Raab said: Biotechnology "prices are not higher in the U.S. than they are in Europe," and the industry has "not increased our prices." PMA also combatted the impression that foreign drug prices are lower than in the U.S. ("The Pink Sheet" March 29, p. 3). Raab added that biotech companies provide free medication to patients who cannot afford their products. Genentech "has given over $100 mil. of our three products away free since we began selling products seven years ago," he said. Nonetheless, IBA opposes government-imposed price controls, Raab continued. "We're a very fragile industry," and "if there are price controls imposed on new products of our industry, there is a high chance that people with AIDS, cancer, with arthritis, with genetic diseases like multiple sclerosis or cystic fibrosis... Alzheimer's, ALS and others will be denied the benefits that come from our research and development."
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