Can we talk honestly for a minute? Prescription drug prices are exorbitant. Drug companies defend their high prices–in particular, for the brand-name drugs they advertise incessantly on our televisions –by talking about the need to pay for developing and bringing new life-saving drugs to market. Unfortunately, these medications will not help if elderly and sick patients cannot afford to buy them.
Attempts to reduce the cost of prescription drugs always run into potent (and well-funded) opposition from drug companies. They denounce smart strategies like Maine’s plan to use the state’s purchasing power through Medicaid to negotiate better prices for the uninsured, the working poor, and others who have no means to pay for their prescriptions. What are their grounds for opposing the Maine plan? They say it violates the sanctity of our country’s most revered document, the Constitution, by interfering with free trade between the states. And when states come together to negotiate purchases for state employees and Medicaid recipients in bulk, drug companies pull out their big guns, calling policy-makers socialists, or worse yet, advocates for price controls.
These arguments are shrill, and they aren’t proving persuasive in the court of public opinion. But they hold sway in legislatures and governors’ offices, where drug companies’ access translates into bad policy for working people who foot the bill–first as prescription drug consumers, and a second time as taxpayers who support state subsidy programs.
In the absence of government action to obtain lower drug prices, consumers are taking matters into their own hands–and feet–by heading to countries like Canada, where prescription medications are cheaper and where they can save up to 80 percent of the cost. In doing so, they are exercising the most basic strategy of a free-market economy–shopping around for a better price. Reimporting prescription drugs from Canada–these medications are largely manufactured in the United States, but over the border they are sold for less–is one sure way to obtain medicine at an affordable price.
The drug companies don’t like this strategy either, especially now that state and local governments are showing interest in pursuing it as well. Former Springfield Mayor Michael Albano led the way, buying Canadian drugs for city employees and retirees. The governor of New Hampshire has followed suit and states such as Illinois, Minnesota, and Vermont are poised to jump on the bus, too, as are New York City Mayor Michael Bloomberg and Boston Mayor Tom Menino. In opposing these reimportation plans, the drug companies fret oh-so-publicly about patient safety–and then threaten to limit their exports to Canada to restrict supply.
Let’s be honest, this is all about money…lots of money. The Kaiser Family Foundation studied the nation’s Fortune 500 companies last year and found that drug companies were the most profitable. While all other companies averaged 3 percent profit as a share of revenue, the profit for drug companies was a whopping 17 percent.
Total drug expenditures by the US government and private citizens skyrocketed from $78.9 billion in 1997 to $154.5 billion in 2001. To be fair to Big Pharma, not all of these revenues went into the pockets of the drug companies as profit. According to the Kaiser Family Foundation, 47 percent of this increase in expenditures can be attributed to a simple trend: More prescriptions are being written. In addition, just over 27 percent of the increase resulted from patients changing over to newer, higher-priced drugs for existing ailments. Genuine advances in the medications that are available are making real improvements in the quality of lives of Americans–at least, those Americans who can afford them.
But we’re also spending more because of a barrage of drug advertising for those purple and pink pills that make you feel better. A recent study by Harvard and MIT researchers showed that direct-to-consumer advertising over the past five years has increased the use of expensive, brand-name drugs. This study found that advertising alone accounted for a $2.6 billion increase in brand-name drug sales in the year 2000.
However, the figure from Kaiser that boggles the mind is that 26 percent of the additional $75.6 billion spent in 2001 on prescription drugs is solely attributable to price increases for the same drugs. Indeed, prices for the most popular drugs for senior citizens rose at 3H times the rate of inflation. This incredible burden is borne in part by government subsidy programs (i.e., taxpayer dollars) and in part by individuals who are paying more of their disposable income on drug expenses (consumer dollars).
It may seem quaint in a laissez-faire era to question why –given that existing drugs have no additional costs for research or production–drug companies would jack up their prices so high. The reason is obvious: They raise prices on sick and elderly people at 3H times the rate of inflation because the not-so-free market in the United States allows them to do so.
Pharmaceutical companies use their money, through lobbying and influence, to boost their profits. In the 2000 election cycle, prescription drug companies spent $262 million on lobbying, campaign contributions, and issue ads, an amount that shattered previous records. And it paid off in the $400 billion Medicare drug benefit passed by Congress. Unbelievably, this bill actually prohibits the federal government from using its purchasing power to negotiate lower drug prices. As a result, taxpayers will be subsidizing the high prices charged for prescription medications. Moreover, a provision that would have allowed consumers to legally purchase drugs from Canada and Europe was dropped from the bill.
Buying drugs in Canada is laissez-faire at its best–and presently one of the only ways that consumers can beat Big Pharma at its own “free market” game. While not a solution to the macroeconomic dilemma, it is a logical–and in many cases, life-saving–microeconomic response to inflated drug prices. Patients who buy their medicines from Canada are using the free market to their benefit.
Government should help them, not stop them. As more and more consumers turn to Canada for their prescriptions, it is our responsibility as leaders to make sure they are doing so safely. I have filed a bill to set up a statewide Office of Pharmaceutical Information that would give consumers the information they need to purchase imported prescription drugs in a safe manner. The office would provide information to consumers about cheaper generic alternatives to costly brand-name drugs, but also offer advice on procuring drugs from reputable and licensed Canadian pharmacies.
The passage of the drug benefit under Medicare refused to deal with one of today’s most pressing public policy dilemmas: the escalating cost of prescription drugs. Indeed, it actually forbids the government from using its market power to negotiate–as any private company does–the best price possible for taxpayers. The federal government may be willing to run up huge deficits in order to keep the drug companies happy, but consumers who cannot afford to pay high prices will continue to look for ways to obtain affordable drugs. Likewise, state and local governments need to find ways to reduce their own drug spending as well as offer their citizens drug coverage they can afford, and reimporting drugs from Canada can help them do so.
The Canadian prescription may be a Band-Aid for the drug-cost problem, but Band-Aids are needed to stop the bleeding. And if enough consumers and governments make use of it, maybe the pharmaceutical industry, and its protectors in Washington, DC, will be open to a real cure.
Jarrett T. Barrios is a Democratic state senator from Cambridge.