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Drugs: Why Do We Pay More?


Even Big Pharma's legendary political clout has proven no match for the anger of ordinary folk over escalating costs at the drugstore. The industry thought its heated lobbying, hefty campaign contributions, and White House backing could quash Capitol Hill's drive to allow Americans to import drugs from countries with far lower prices. But in an early morning vote on July 25, the House handed the industry a stunning rebuke -- a 243-to-186 vote on a bill that opens the door to widespread imports. "The will of the Congress spoke," says Representative Jo Ann Emerson (R-Mo.), who led the fight. "The American people want relief."

The vote shines a harsh light on the prices Americans pay for medicines -- often more than twice what Canadians or Europeans face. "American consumers are footing the bill for R&D while consumers in other countries get the benefit," says Senator Susan M. Collins (R-Me.), a key Senate supporter of drug imports. "I don't think that's fair."

The price disparity has already spawned scores of storefronts across the country and hundreds of Web sites offering U.S. residents cheaper drugs from Canada and elsewhere. And if Congress gives the green light to imports, the impact on Big Pharma's prices -- and profits -- could be huge. Even if imports were limited to products from Canada, Senator Byron L. Dorgan (D-N.D.) pegs the savings for consumers at up to $38 billion a year, most of which will come out of drugmakers' pockets.

Mounting pressure to lower drug prices through imports comes at a time when the industry is already suffering from a paucity of new drugs coming out of the pipeline and from top-selling medicines going off patent, ushering in competition from cheaper generics. Profits are also under threat as poor countries such as Mexico increasingly push for the right to manufacture and sell far cheaper drugs.

In this environment, allowing drug imports "would have a devastating impact on the pharmaceutical industry's profits," says independent analyst Hemant K. Shah.

No one expects the House bill, which would open the U.S. to imports from 25 specified countries, to become law as written. But the vote virtually guarantees that any bill Congress manages to pass this year adding a drug benefit to Medicare will include a plan to let Americans buy cheaper drugs from beyond U.S. borders. That's because the Senate-passed version of the Medicare bill already has a provision that permits imports from Canada -- as long as the federal government can ensure the drugs' safety. "The House vote has generated huge momentum," says Representative Bernard Sanders (I-Vt).

Still, a federal guarantee that imported drugs are safe remains a big "if." Congress passed a similar law allowing imports in 2000, provided the Health & Human Services Dept. could guarantee their safety. But HHS refused to sign off. HHS officials say they won't allow imports this time, either, because, they argue, such drugs would be too risky for consumers. Food & Drug Administration policy chief William K. Hubbard points to drugs ordered from Canada that weren't refrigerated as required or which were actually made in India. "The consumer is totally at the mercy of the person on the other end," he says.

If the HHS and FDA refuse to certify that drugs can be imported safely, according to the current Senate measure, the plan would go nowhere. That's why some political hands argue that members who passed the House bill got a free vote: They can tell constituents they took a stand for cheaper drugs even though nothing will change.

"This is an illusory promise," says Ira S. Loss, senior health-care analyst for Washington Analysis LLC. But "there is such hunger for solutions to these problems with pharmaceuticals that people latch onto things that are illusory."

Still, there may be enough momentum this time to pass a measure without the HHS requirement, thus forcing regulators and the industry to swallow imported pills. Supporters in Congress argue that a carefully crafted bill could solve the safety problems. After all, imports are already routine in Europe, where middlemen buy drugs in countries with lower prices, such as Spain, and repackage them for resale in nations with higher prices. Moreover, the current Senate bill allows only imports from FDA-approved facilities, and only from Canada. "That removes most of the legitimate safety issues," argues Senator Collins. Indeed, while the House bill covers 25 countries, its backers see Canada as their opening wedge. "I think a compromise could be something like drug importation with Canada," says Emerson. "We'll see if it works, and then expand it to the European Union."

Big Pharma, of course, is gearing up to fight the importation bills at every turn. Its lobbyists insist that Americans would be at risk. They argue that the real solution to high costs is helping people pay for drugs via better insurance -- including a Medicare drug benefit. "Far too many people can't afford drugs because they don't have prescription-drug coverage," says Jeff Trewhitt, spokesman for Pharmaceutical Research & Manufacturers of America (PhRMA).

What's more, suggests David R. Brennan, president and chief executive of AstraZeneca (AZN) U.S., a Medicare drug benefit would reduce average prices in the U.S. The main reason why prices are lower in Canada and Europe is that governments use their huge bargaining power to win big discounts. Even in the U.S., drug prices vary widely because organizations with clout, such as the government, big health-maintenance organizations, and employers, negotiate big savings. A Medicare drug plan would bring such negotiated discounts to the vast market of elderly Americans, Brennan says. So allowing imports wouldn't provide that much additional savings.

Drugmakers are also contemplating strategies to get around any importation bill. If the law required that all drugs imported from, say, Canada, be made in FDA-approved facilities, then drugs designated for sale in Canada could be made in plants purposely removed from FDA purview. "It's simple to defeat the intent of the bill," says Richard T. Evans, a pharmaceutical analyst at Sanford C. Bernstein & Co.

Maybe so. But clearly, the industry can't put this issue back in the bottle. Whatever Congress finally does, outrage over high drug costs has already led many Americans to buy their drugs from other countries. Hans W. Jenau, founder of a storefront in Oviedo, Fla., that helps seniors buy from Canadian pharmacies, reports that 10,000 people have used his service since he opened in June, 2002. Overall, House investigators put the number of import shipments at more than 20 million a year, up from 2 million just two years ago. While that represents just 1% to 2% of the nation's $240 billion drug bill, it's likely to keep growing rapidly.

That's why the House vote is just the latest indication that rising drug costs have put Big Pharma on the defensive. "This was a sign that drug prices are unconscionable -- and that the industry is not as powerful as it thought it was," says James Packard Love, director of the Consumer Project on Technology. No amount of drugmaker lobbying or campaign contributions will keep Americans from seeking cheaper drugs wherever they can find them. By John Carey, with Alexandra Starr, in Washington, and Amy Barrett in Philadelphia


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