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The demonizing of drug companies

Prescription drugs have succeeded in lengthening and improving enormously the quality of life, thanks to modern technology and the economic system in which that technology was incubated. Yet, the fact that modern drugs are by some measure “expensive” makes their creators perfect political targets.

There was a time when a man with ulcers would have to undergo surgery. Now he can take Zantac for three or four months at a cost of $129 a month. A woman with osteoporosis can protect against broken bones by taking Fosamax at $70 a month.

That may seem like a high price to pay, but it beats the pain, lost work time and risk to life and limb that drugs like these can help avoid. Prescription drugs have succeeded in lengthening and improving enormously the quality of life, thanks to modern technology and the economic system in which that technology was incubated.

Yet, the fact that modern drugs are by some measure “expensive” makes their creators perfect political targets. Al Gore promises to “stand up to the drug companies.” President Clinton and Senator Ted Kennedy would impose what amounts to price controls on prescription drugs provided under Medicare.

The drug companies are investing $26 billion a year in drug research because, so far, they have escaped this fate. Do we really want to vest responsibility for curing diabetes, AIDS and Alzheimer's disease with the same government that gave us the Postal Service, the IRS and the Big Dig?

State governments are becoming more aggressive, too, in their efforts to push down prescription drug prices. Massachusetts officials are formulating a plan to negotiate drug prices on behalf of the uninsured and of persons covered by state health or pharmacy programs. There is talk of a New England consortium that would act similarly on behalf of the entire region.

But are drug prices really so high? Surely not by any accounting standard. Drug companies invest $500 million and test as many as 10,000 new drugs just to make one new life-saving drug available to consumers.

There would be no miracle drugs if the drug companies couldn't charge prices high enough to recover these costs. Price controls will dampen research and development, limit choices and delay treatment, as they do wherever they are imposed.

Proponents of price controls argue that drug prices are much lower in Canada, Mexico and other foreign countries. But no wonder. The United States is, by far, the world leader in the development of new drugs. Because foreign countries are willing to cede leadership in this area to the United States, they have nothing to lose by imposing price controls.

Foreign governments negotiate low prices for their citizens much like price-control advocates would do in this country. U.S. drug companies go along with this practice as a way of covering some of their fixed costs and out of consideration for foreign patients who would otherwise have to go without. But the drug companies cannot recoup their investments unless they have free reign to set prices in the U.S. market. Mimic Canada and any other country that struggles under the dead hand of regulation and there will be precious few new miracle drugs to regulate.

On average, prescription drug prices are growing by less than 4% a year while expenditures on prescription drugs are growing much faster, about 14% a year. Rather than a sign of trouble, that's a sign of progress, of the eagerness with which consumers are willing, if necessary, to sacrifice a few hundred dollars in order to avoid ulcer surgery or a broken hip.

If Congress or the states wanted everyone to enjoy the same discounted drug prices that are paid by patients in private insurance or managed care programs, they could bring about that result by simply giving the uninsured direct access to those programs. For example, Congress could let seniors use Medicare funds to enroll in competing plans that offer prescription drug coverage, if that would improve the quality of care at lower cost to taxpayers and patients.

Politicians who demonize the drug companies in order to garner votes and to chip away at the private health care system are playing with our lives. If there is no one left to pay for expensive new miracle drugs, there will be no such drugs to take. First on any patients' bill of rights should be the right to buy prescription drugs without the meddling of any would-be protectors of our pocketbooks.

David G. Tuerck, PhD, is chairman and professor of Economics at Suffolk University where he also serves as Executive Director of the Beacon Hill Institute for Public Policy Research.

Thi s article appeared in the April 3, 2000 edition of the Boston Globe.

Format revised on 18 August, 2004