Yesterday Reuters reported that, in comments at a Financial Times conference in London, a top executive at Roche Pharmaceuticals condemned direct-to-consumer advertising as a disaster. “Direct-to-consumer promotion [of drugs] was the single worst decision for the industry," said William Burns, Roche’s head of pharmaceuticals, to conference attendees. "When industry says we're spending all the money on R&D but actually it's spending it on TV advertising to preserve margins, it doesn't get much credibility,” he continued.
Burns’ despondency is understandable: if ever there was a time that the prescription drug industry needed credibility, it’s now. For the first time in recent memory, drug companies are facing the prospects of an end to their free ride of unregulated profiteering. There are already rumblings that both the Obama Administration and the Democratic Congress want to stack up a series of clean legislative victories by going for “low-hanging fruit”—bipartisan, popular initiatives that will pass easily—and there are few juicier targets than Big Pharma.
A few days ago, The Chicago Tribune reported that President Obama will likely push for “cheaper copies of expensive drugs derived from biotechnology,” will let Medicare “negotiate drug prices directly with drug companies,” and will try to make “it legal for pharmaceuticals to be imported into the U.S.” In other words, Obama wants to make drugs cheaper for patients, and thus impact drug companies’ bottom line. According to David Dranove, professor of health industry management for Northwestern University's Kellogg School of Management, these changes have been “hanging there [in Congress] for some time and will be easy sells and easy to get through."
For its part, the industry knows that it’s got a big, fat target on its back. During the presidential election, drug companies were torn over which candidate to support, mostly because they couldn’t decide who hated them less. Even John McCain boasted—not untruthfully—that he repeatedly “took on the drug industry” over the course of his career.
The comparable distastefulness of both candidates led to a development that hasn’t happened in almost twenty years: the prescription drug industry gave to the Democratic and the Republican presidential candidate in almost equal amounts (usually pharma goes for the GOP). “Both [Obama and McCain] blame big drug companies for high prices and reduced innovation,” sighed one industry insider. “In either case, we should expect more price negotiation and re-importation [of drugs].” Translation: the honeymoon is over.
Indeed, momentum for meaningful changes to how—and how much—our system pays for prescription drugs seems to be building. Today The New York Times published an article about how the British model of institutionalized comparative-effectiveness research is inspiring reformers and policymakers around the globe. Meanwhile, here in the states, there’s already a comparative-effectiveness bill in Congress—and it even has the support of the Pharmaceutical Research Association.
This is compelling stuff: by definition, comparative-effectiveness research compares the effectiveness of different treatments, which means someone’s product is going to come out the loser. The fact that the pharmaceutical industry is supporting comparative-effectiveness research, even at this early stage, strongly suggests that industry knows that our health care status quo is unsustainable.
Another sign that Congress is likely to tilt the status quo against drug companies is the recent election of Rep. Henry Waxman (D-Calif.) to chair the House's Energy and Commerce Committee, which has oversight of the Food and Drug Administration (FDA). Waxman is famous (or infamous) for being an energetic watchdog, and has a long history of taking on the prescription drug industry, specifically direct-to-consumer (DTC) advertising: in the past, Waxman has proposed a mandatory FDA approval of all DTC ads before airing and a two- to three-year moratorium on ads for new drugs.
Like Waxman, Obama has DTC advertising in his sights, although the president-elect has been somewhat vague in defining his intended actions. Possibilities include Waxman’s proposals, generally more restrictive advertising standards, or limiting DTC advertising’s tax deductibility as a business expense. (Given all these possibilities, one gets the sense that Burns’ open criticism of DTC ads could be of the “if you can’t beat ‘em, join ‘em” variety).
The final piece of Big Pharma’s nightmare is an FDA with teeth—something that looks to become a reality under Obama. The folks supposedly under consideration for FDA commissioner read like a list of the drug industry’s greatest nemeses. Amongst the contenders is Dr. Steven Nissen, a Cleveland Clinic cardiologist who first made the link between Vioxx and an increased risk of heart attacks and strokes (much to the dismay of the drug’s manufacturer, Merck). Nissen also blew the whistle on Pargluva, a diabetes drug produced by Bristol-Meyers Squibb that increased risks of cardiovascular death, and publicly insisted that Vyotrin, a blockbuster cholesterol drug, only be used “as a last resort.”
Dr. Joshua Sharfstein, another possible FDA commissioner, is also bad news for drug companies. Sharfstein has served as a health policy advisor to Rep. Waxman and led the campaign to ban over-the-counter cold medicine for children under two. His efforts eventually forced the industry to “voluntarily” pull from the shelves all medicine that it claimed was safe for young kids. Also in the running is Peter Rost, a former Pfizer executive who’s become a vocal proponent of drug re-importation and increased price competition amongst prescription drugs—and who has been publicly lauded by Obama chief of staff Rahm Emanuel.
One way or another, it looks like the prescription drug industry is in for a bumpy ride—or, to quote a (perhaps overly-dramatic) AdAge blog post: “Obama [is] already turning into a nightmare for Big Pharma.”
Let’s hope that this is the case. As we’ve noted oh-so-often here on Health Beat, the industry’s practices are consistently alarming, ranging from distortions of clinical data to a deluge of DTC advertisements that work hard to convince relatively healthy patients that they’re sick. All this scamming costs a whole lot of money: our per capita expenditure on pharmaceuticals is 92 percent higher than the average for OECD countries, and DTC advertising increased by 330 percent from 1996 to 2006, topping out at a whopping $4.2 billion that year. But patients get very little bang for the buck—and it’s time that this equation was changed. The new political establishment looks willing to explore the possibilities for doing just that.
Also relevant is the recession, which will inevitably change the political calculus of prescription drugs in the U.S. Like everyone else, drug companies will have to tighten their belts, which means that they’ll have to be more selective in their PR campaigns and legislative battles. Politicians will also come under increased pressure to take a more populist stance on the prescription drug issue. After all, backing up Big Pharma during the heady 1990s was one thing; but over the next few years, supporting drug company interests will increasingly mean keeping drug prices too high for struggling Americans to afford their medications. That’s not a choice that any politician wants to make.
The prescription drug industry will have to make some hard choices under an Obama Administration. The industry’s best hope is to recognize that its business practices are unsustainable and must be revised as our nation’s problems grow more severe, just as Burns did when he declared that the “marginally-different-and-market-it-like-hell model [of prescription drugs] is over” at the FT conference.
Let’s hope he’s right.
Niko
Since you brought it up…
I hardly think Obama’s last thoughts at night these days our DTC ads. He has bigger fish to fry.
Second, I think the press is doing all of us a disservice by invoking drug reimportation as a solution to pharma costs. The rest of the world is, a) unable to meet our needs, and b) subject to market whims like the rest–and pharma will raise their prices in a compensatory fashion if countries of intent offload rx meant for them back to us.
Third, I am all for CMS negotiating prices in Medicare/public plan. However, do you envision a limited formulary, price ceilings, competitive bidding? With such a monopsony, even the drug industry–with whom many of us have little sympathy (including me)–may get impacted severely. An utterly draconian approach could really have unintended consequences, and I really want to know how we are going to do this in an “American way.”
Bottom line for me: everyone talks about negotiating prices, however, I have not seen one cogent proposal–not a lick–of how this might work half way intelligently.
Brad
This former truly miracle industry has gone completely sour mostly because of greed, arrogance,and excess.
To promote the notion that pharmaceuticals can solve all human porblems is a dangerous fraud perpetrated upon gullible and trusting American health consumers.
But much of the public is now realizing that they have been duped and exploited at best or,at worst,often directly harmed. And price gouged I might add.
Also large amounts of pharmaceuticals and their active metabolites have migrated into our general environment-mostly contaminating our water supplies.
I have two basic regrets.
1)Fines and lawsuits are not enough. Some of these so called “health care” executives should be indicted and jailed
2)It probably will take decades for the public to regain trust in the healing power of the judicious use of appropriate types and doses of good and safe medicines.
This industry’s contemporary practices will be recorded in American medical and business history as a tragedy of monumental proportions.
If you are reporting that it is finally coming to an end this,indeed,is very good news.
Dr. Rick Lippin
Southampton,Pa
Brad-
First, thanks for your comment.
This is Niko’s post, but I’ve done quite a bit of research about negotiating drug prices and drug formularies. . .
When it comes to negotiating for lower prices, we have a very cogent model: the Veterans’ Administration negotiates for discounts and pays far less for many of the the drugs most popular among Medicare patients.
(If memory serves the VA pays 50 percent less for 10 of the 20 most popular Medicare drugs. See Philip Longman’s The Best Care Anywhere. )
Yes, it has a formulary–as does the Mayo Clinic, Kaiser etc. (That formulary, based on evidence of risks and benefits caused Mayo, Kaiser and the VA to stop prescribing Vioxx for most patients more than a year before the manufacturer was forced to take it off the market. They continued prescribing Vioxx for patients who couldn’t tolerate other painkillers, but not for the majority.
Obama came out strongly for letting Medicare negotiate prices when a bill that would do just that fizzled in the Senate in 2007. (See my new post, quoting him.)
He also has said he will allow importation of drugs from Canada. I think this is mainly to put pressure on drug makers to begin lowering their prices.
Until recently, drug company profit margins have been obscene– far higher than other companies. And for the past 15 years, Big Pharma stocks have not been risky enough to justify paying shareholders such a premium.
Shareholders simply became accustomed to fat gains, and CEOs did whatever was necessary to hype expensive sometimes risky drugs in order to fatten their own bonuses.
Pharma spends more on marketing and advertising than it does on reserach.
As an industry it also should have taken steps to become more efficient –it felt it didn’t need to. Institutional stock analysts (particularly in Europe and the UK) have been very critical of the industry on that score.
And even in the U.S. analysts have warned that prices on cancer drugs are so high that the industry is asking ot have prices regulated.
As the Times noted recently, even Pharma is beginning to realize that it must cut prices an focus on devleoping affordable drugs:
“Drug and device makers, which once routinely denounced the British for questioning product prices, have begun quietly slashing prices in Britain to gain NICE’s coveted approval, especially because other nations are following the institute’s lead. Companies have said that they will consult with NICE to help determine which experimental compounds enter the final stage of clinical trials, so the British agency’s officials will soon influence which drugs enter the market in the United States.”
The Times story continued: “The health institutes in both Britain and Germany may soon suggest prices for drugs, a strategy intended to deflect political pressure back on the companies and shorten negotiations that now often take months.”
This is another “cogent model” though at present, the U.S. is most likely to look at “comparative effectiveness” rather than “cost-effectiveness” when negotiating for lower prices.
“We have been told that the price is the price, but the worm is turning now,” Dr. Barnett said.
“Company executives acknowledge that they are increasingly acceding to British demands to slash prices.”
And, the Times reported: “John R. Dwyer Jr., a Washington lawyer who represents device makers, said that many in the industry have believed that major changes to control costs in the federal Medicare program were inevitable, and “people see NICE [the UK Institute that evaluates effectiveness and deciddes what NIH will include in its formulary] as the only workable paradigm.”
Another cogent model of how it could be done intelligently.
Brad, I’m not quite sure what doing this in an “American way” means.
The executive from Roche is probably Swiss. I’d be happy to do it in a “Swiss way” –a very nice, efficiently run country that doesn’t put up with nearly as much corporate corruption as we do.
Finally, as a matter of public policy, we want to see the drug industry shrink. Americans are over-medicated. A growing drug industry has not been adding to the health–or the wealth–of the nation. Quite the opposite.
In recent years drug-makers have been producing me-too drugs. Real breakthroughs have come mainly from govt’ research.
In other posts, I’ve noted that when Obama talks about stimulating the economy, he talks about bridges, schools, etc. But he never talks about healthcare.
This is because he knows, as Orszag knows, that a combination of rising volume and rising prices is driving the health care inflation that Orszag says is behind our fiscal crisis.
We don’t want a larger health care industry; we want it to level off or shrink.
Maggie
Like I said, I am far from enthralled with pharma and know about their profit margins, mischief, and other good things. However, the VA is not 25, 30, or 40% of America, and while we do need rejiggering, approaching this in a pragmatic way is important. We still need them, as much as they need to change (just read the WSJ these days–talk about trouble).
Pharma’s cries can be a bit deafening, and frankly, I am not weeping. However, you are talking about a huge sector, they do perform a service, and the balance between innovation/R&D, as little as it is these days (yes, I read Marcia Angell’s book) and complete lockdown needs careful thought.
It is one thing for the VA to use one ACE inhibitor or statin, it is another for every senior in America. I am just saying caution and forethought is necessary. Lets not throw the dysfunctional baby out with the bathwater.
OK, I am off to take my Flintstone chewable.
Brad–
The VA is actually the largest health care system in the world. (We New Yorkers just don’t know that many Vets, so we don’t realize how huge it is.)
Longman’s book on the VA: The Best Care Anywhere, really is worth reading. In the 1990s,a new VA director did a great job of reforming the system.
Unfortunately, beginning in 2000, the Bush administration began underfunding the VA, which has led to long waits for appointments and many problems.
But the VA system developed in teh 1990s remians an excellent model for a large pool of patients.
Direct to consumer advertising is great. It educates the public about important medical conditions, and their treatment.
The left wing ideologue and the lawyer internal traitor are trying to do to pharmaceutical companies what was done to manufacturing, defund it, delegitimize it, end it.
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