By Lisa Seachrist
WASHINGTON ¿ With the Medicare drug-benefit debate heating up in Congress, pharmaceutical and biotechnology companies have received new validation for their opposition to government-imposed price controls as a means of providing the benefit to the nation¿s seniors.
A study sponsored by Warner-Lambert Co. examining government market interventions aimed at controlling pharmaceutical prices indicated that such measures fail to provide the long-term benefit of cost savings, and resulted in poorer health outcomes.
The Boston Consulting Group (BCG), a global management consulting firm based in Boston, examined the effects of government interventions in the global pharmaceutical marketplace. It found that, while market interventions such as price controls can contain spending in the short term, the long-term effects of such interventions tend to be deleterious to payers, patients and innovation.
¿The issue of price controls has been around for a long time,¿ said Anthony Wild, corporate vice president and president of the pharmaceutical sector for Warner-Lambert, of Morris Plains, N.J. ¿The findings of the report are quite surprising. All of these interventions, from price controls to curbing demand for new pharmaceuticals, have failed.¿
In fact, instead of curbing the increase in pharmaceutical prices, such market interventions appear to have little effect. For example, the BCG study pointed out that pharmaceutical spending growth rates in the 1990s in countries with widespread interventions have been no different from markets such as the U.S., with very few interventions.
¿We found that there was no impact in the long term on the relative growth rate in the price for pharmaceuticals,¿ said Arnon Mishkin, vice president of BCG. ¿And the measures violated the first rule of medicine: First, do no harm.¿
Mishkin noted that the efforts to rein-in pharmaceutical spending unintentionally increased spending in other parts of the health care budget ¿ surgeries, for example. As a result, Mishkin maintained, patients suffered from the market regulation, while no real cost savings were provided to health care programs paying for the drugs.
Many market interventions are designed to ensure that pharmaceutical costs are not so prohibitive that patients lack access to drugs simply because they can¿t afford them. However, the BCG analysis found that, in markets with very low drug prices, drug companies had little incentive to perform physician education programs and marketing activities.
As a result, physicians won¿t prescribe newer, innovative therapies because they aren¿t familiar with them, and patients, in effect, lack access to these therapies.
In addition, market interventions can stymie the incentive for companies to innovate and compete with each other. BCG found that attempts to control prices for particular drugs or drug categories may, in the end, reduce competition and lead to prices that average higher.
¿Such schemes tend to protect companies with moribund, older products at the expense of innovative new products,¿ said Simon Goodall, project leader for BCG. ¿These countries have a less-developed generics industry which rewards companies who have older, me-too¿ products.¿
Without a reward at the end of the costly pharmaceutical-and-biotechnology development cycle, companies have little incentive to bring forward blockbuster new drugs, Wild said.
¿The purpose of this study was to provide data to governments looking at their drug pricing schemes to inform the debate,¿ he said.
BCG suggested that there are four components to reforming pharmaceutical markets in countries currently employing price controls. First, intellectual property must be protected. Second, in order to see competition over the life cycle of the pharmaceutical product, countries must focus on reducing barriers to such competition for both patented and off-patent products.
Third, the market pricing must be able to reward innovations early in the product life cycle while rewarding low costs as the product moves off-patent. Finally, governments should encourage active decision-making by physicians and patients, including scientific and economic information.
¿If you bring in severe price controls, in the end you are going to damage the industry that brings you the innovative new drugs,¿ Mishkin said. ¿The free market allows you to have a virtuous cycle where everyone wins.¿ n