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ME-TOO DRUG DEVELOPMENT WILL BE DISCOURAGED IN EVOLVING U.S. HEALTH CARE SYSTEM, HARVARD’s AVORN SAYS; MEDICARE SAVINGS WILL HELP FUND DRUG BENEFIT

Executive Summary

The development of non-breakthrough drugs will be discouraged by the changing U.S. health care market, with or without health care reform, Harvard Clinical Strategies Analysis Program Director Jerry Avorn, MD, told a Nov. 1 seminar on universal drug coverage sponsored by the Institute for Alternative Futures. "The marketplace is going to be unwilling to tolerate or reward the development of the 42nd NSAID anymore," Avorn said. "We're going to see a great deal more marshaling of R&D efforts in directions that are probably more productive," he contended. "That's probably a good thing, and that's going to happen with or without any changes" to the health care system. House Energy & Commerce/Health Subcommittee Counsel William Schultz contended that the "free market just doesn't work for prescription drugs" in the retail pharmacy setting, where drugs are obtained by Medicare patients. "The fact that most [prescribers] are ignorant about the price of prescription drugs," the fact that use of generic drugs required "changes in laws in 50 states" and "the fact that the drug industry spends more money on promoting drugs than it does on research" all demonstrate that there are "real gaps" in the market for pharmaceuticals, Schultz charged. There is a "discrepancy between the retail price and the price" at hospitals and HMOs, Schultz noted, but Medicare will distribute drugs through the proposed outpatient program "through the retail pharmacy" market, which "doesn't have available to it formularies" to extract competitive pricing from manufacturers. "We have to recognize," Schultz continued, "that as long as a substantial portion of people are paying for drugs" in the retail setting, "where a formulary is not part of the process," there will continue to be two tiers of pricing. Volume purchasing alone cannot bring down acquisition costs for retail pharmacies, he said. "They can't get the same price, and that's because they don't have the ability to shift the market" through formularies as hospitals can. David Schulke, the legislative assistant to Rep. Wyden (D- Ore.), maintained that the best way to ensure "pharmaceutical care" in the future is "to have the people who know most about how to utilize pharmaceuticals" and about their costs -- pharmacists - - "involved with the patient" and with prescribers in product selection. To encourage such involvement, pharmacists "should be paid for their cognitive services, just as physicians are paid," Schulke contended. He also urged that mechanisms be established to develop comparative data on therapies. Calling for an incentive envisioned by his boss and described at an Oct. 21 hearing before the House Small Business/Regulation Subcommittee ("The Pink Sheet" Oct. 25, p. 3), Schulke asserted: "Innovation does not stop with the creation of a molecule." The system needs to understand a product's "relative value to other therapeutic modalities" and "how it fits into the overall scheme of the alternative treatments," he said. House Energy & Commerce/Health Subcommittee Minority Counsel Howard Cohen cautioned that any pharmaceutical pricing policies by the government should be made with an awareness of "tradeoffs" with the potential adverse effect on the U.S. industry's standing as the world leader in breakthrough product development. "My understanding is that 95% of breakthrough drugs developed worldwide are developed in the U.S.," Cohen commented. One reason is that "almost every other country" imposes price controls" on pharmaceuticals, he said. U.S. patients "shouldn't have to pay twice the price" paid for drugs by patients overseas, but the issue remains as to whether there is "some way to socialize research worldwide" in order to ensure continued innovation. The Clinton legislation's breakthrough drugs council and Medicare coverage exclusion provisions provide the government "a pretty big hammer" with which to hit a company that must spend $300 mil. or more on drug development, Cohen continued. "That's the same hammer that the French and everybody else" with government price controls use. Senate Special Committee on Aging staffer John Coster pointed out that Great Britain has both government-imposed controls on industry and a significant share of innovation. He added that comparing a breakthrough product's price to the cost of hospitalization, surgery or other labor-intensive treatments begs the question of whether the product's "price is the real price that we should pay." The market may not provide a "sufficient mechanism for determining the price for a new breakthrough drug." At a Nov. 3 House Budget Committee hearing, HHS Deputy Assistant Secretary for Policy & Evaluation Kenneth Thorpe, PhD, said the Administration expects to fund the Medicare drug benefit mostly with $95 bil. in projected savings from Medicare Part A and B. HHS hopes to save $60.3 bil. in Part A expenditures and $34.7 bil. in Part B spending by extending savings provisions of the 1993 budget reconciliation act, reducing disproportionate share hospital payments and slowing Medicare's annual growth rate from 10% to 8%. Savings would be used to fund the Medicare drug benefit and to expand long-term care benefits to the extremely disabled.
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