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Executive Summary

DRUG COPYRIGHT/ROYALTY APPROACH TO COST CONTAINMENT OPPOSED by a report from the American Medical Association's Board of Trustees. The report argues that a royalty system could "severely" reduce incentives for innovation, an effect that would likely outweigh possibilities for cost savings. Adopted by AMA's House of Delegates during a Dec. 8 session of the group's Interim Meeting in New Orleans, the report was one of three drug cost containment measures debated by AMA delegates. The ability to recoup R&D costs during the current 17-year patent protection period is "among the greatest incentives for innovation," the report concludes. "This incentive might be severely truncated by creating a new copyright system for drug products." Last June, the delegates had discussed a resolution suggesting copyrighting as a possible means of restraining prescription drug prices but decided instead to ask the Trustees to review the issue. The earlier resolution had called for a "royalty system whereby drugs would be protected by copyright and licensed by a pharmaceutical company to other companies who wish to manufacture the same drug." The Board of Trustees report states that copyrighting proposal "has the laudable goal of reducing the costs of drugs while increasing competition." Nevertheless, "changing the copyright laws to enable drug products to fall within the definition of copyrightable subject matter would require extensive changes in a law that has existed for virtually all of this century," the study noted. In addition, "the potential effects of such changes are far-reaching. If drug products were made copyrightable, any company would be free to use the same ideas for a drug product that were used by another pharmaceutical company." The report also notes that a copyright approach could add new regulatory burdens and could have an international impact. The report suggests that it "might be more appropriate to study" compulsory drug licensing within the current patent system but comments that a recent General Accounting Office report found Canada's licensing program "had a negative impact on Canadian research and development of pharmaceuticals." At a Dec. 6 reference committee hearing on the report, Pennsylvania delegate Robert Rienecke, MD, maintained that drug prices continue to increase despite voluntary efforts by the pharmaceutical industry to bring increases more in line with general inflation. "During the past six months, several drugs that my patients take have increased by more than 15% in price after, in fact, the drug industry indicated that they would have voluntary self-restraint," he stated. Rienecke suggested that "there is plenty of room for exploration" in the area of modifying the protection of pharmaceuticals. Suggesting that "the owners of copyrights do very well over many years," he urged the AMA board to "carefully look at this again and see if there are not some means of getting at least a potential solution to encourage drug companies to have a further licensing of competition early in the course of the drug to see if we cannot get a lower price." In response to Rienecke, AMA member and Pharmaceutical Manufacturers Association Senior VP-Scientific Affairs John Beary, NM, contended that a drug's "product life cycle is not 17 years," or the period of patent protection, but "actually about seven years." He also explained that new drugs are immediately patented upon discovery and then must undergo more than 10 years of clinical trials and regulatory approval before the first sales can be made. Beary maintained that a copyright "would not give anyone the type of security to protect a $300 mil. investment." He offered his support for the AMA board's recommendations, and advised the association to be "cautious, careful and credible" in its consideration of this issue. Also on Dec. 8, the delegates adopted a resolution stating that AMA should "explore and pursue the most effective mechanism for providing drug pricing data to physicians." The resolution further recommends that AMA Drug Evaluations may serve as a viable means of conveying drug price information because the publication is "not biased by the concerns that drive individual drug manufacturers and which diminish the value of the Physicians' Desk Reference," the resolution states. An AMA reference committee adopted the resolution as a modification of one drafted by New England delegates calling for drug prices to be included in the Physicians' Desk Reference. During a Dec. 6 hearing of the reference committee, the AMA delegates noted that the PDR includes only a limited number of drugs and manufacturers must pay to have their products included. Also, drugs within the same class are not grouped together, making cost comparisons difficult. Another measure calling for a federal mandate that drug companies must charge the same prices to retail pharmacies that they do to managed care groups was quietly rejected by AMA representatives. As drafted by the American Society of Abdominal Surgeons, the resolution alleged that drug makers "are discriminating by giving steep discounts to managed care organizations" and that pharmaceutical companies "increase their prices to the retail sector to make up for discounts to managed care enterprises." The measure asked AMA to "urge the Clinton Administration to address a drug pricing disparity in its health care reform program with a provision that would require pharmaceutical companies to sell to pharmacies and managed care plans on equal terms." During Dec. 6 reference committee debate, board of trustees representatives advised delegates to consider the resolution very carefully, suggesting that it invited price controls. Warning that "what's good for the goose is good for the gander," the board members urged that the resolution be rejected in light of AMA's policy of opposing all forms of price controls. The resolution subsequently was placed on the consent calendar and rejected without full debate by the House.

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