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Pharmaceutical Industry's Propaganda Campaign Against the Prescription Drug Fairness for Seniors Act

The Pharmaceutical Research and Manufacturers Association (PhRMA) has launched an all-out effort to defeat H.R. 664/S. 731, the Prescription Drug Fairness for Seniors Act. It is the leading legislation in Congress addressing one of the most serious health care problems facing Americans: the exorbitant cost of prescription drugs. Many seniors and individuals with disabilities cannot afford the prescription drugs they need because of price discrimination: since Medicare does not cover outpatient medicines, they must pay "full sticker price" at the pharmacy counter.

H.R. 664/S. 731 do not dictate the prices drug manufacturers can charge. The bills simply require drug companies to give Medicare beneficiaries the same price discounts that they give to their best customers like large HMOs or the Departments of Defense and Veterans Affairs. While not a substitute for a Medicare prescription drug benefit, the Prescription Drug Fairness for Seniors Act is a good step in the right direction.

PhRMA is running a well-funded and well-organized campaign against this important pro-consumer legislation. They've enlisted a number of healthcare groups, including the Seniors Coalition, Healthcare Leadership Council, National Kidney Cancer Association, National Kidney Foundation, and the Cancer Research Foundation of America, to participate. But it is important to note that these groups have a conflict of interest: they all receive funding from the pharmaceutical industry.¹

The PhRMA propaganda campaign outside Washington is being run by a media/public relations firm, Creative Response Concepts (CRC).² In a May 27, 1999 memo to Radio Producers, Editorial Writers and Political Reporters entitled "What's Unfair about the Prescription Drug Fairness for Seniors Act?" CRC staff person Mike Russell made four arguments against H.R. 664/S. 731 which are quoted and rebutted below.

1. The "R&D Scare" Argument. "This legislation...could deal a crippling blow to pharmaceutical innovation and research..."

The Facts:

The Pharmaceutical Industry is the most profitable in the U.S. in terms of profit margin. Ending price discrimination against seniors will not shut down new drug R&D. The industry:

• Spends less on R&D than goes into profits. In 1999, the top five pharmaceutical companies (ranked by sales) all allocated a higher proportion of their revenue to net income than to R&D.³
• Spends $11 billion annually on advertising and marketing.⁴
• Makes $26.2 billion annually in profits.⁵
• Has a profit margin of 28.7 percent, nearly three times higher than the profit margin of other manufacturers of branded consumer goods.⁶
• Ranks #1 inprofits among all industries on all measures: return on revenues, assets, and equity.⁵

The drug industry has cried wolf before about R&D - the sky didn't fall then, and it won't now:

• The brand name pharmaceutical industry said that increasing the availability of generic drugs, part of the 1984 Waxman-Hatch Act, threatened R&D. But over the five year period following passage of the legislation, pharmaceutical companies more than doubled their investment in research and development, from $4.1 billion to $8.4 billion.⁷
• In 1990, the Pharmaceutical Manufacturers Association (PhRMA predecessor) opposed legislation enacted into law to reduce Medicaid drug prices because "[i]ncentives for pharmaceutical research will be reduced."⁸ But between 1990 and 1997, pharmaceutical companies again more than doubled their spending on research and development, from $8.4 billion in 1990 to $18.9 billion in 1997.⁷

2. The Spectre of Price Controls Argument: "The 'Prescription Drug Fairness for Seniors Act' would place federal price controls on the prescription drug market..."

The Facts:

H.R. 664/S. 731 does not set prices.

It uses the purchasing power of Medicare's 40 million Beneficiaries to get the same low price as drug companies charge favored customers like HMOs, large insurers, and Federal agencies like the Departments of Veterans Affairs and Defense.

The Prescription Drug Fairness for Seniors Act does not tell drug companies what prices they must charge. They are free to negotiate with large volume purchasers and set any prices they choose. H.R. 664/S. 731 simply requires that the companies give seniors and people with disabilities on Medicare their best negotiated price.

Section 3c of the bill requires drug companies to make Medicare outpatient drugs available to pharmacies at the lower of (1) the lowest price paid by any agency or department of the United States or (2) the manufacturer's best price for the drug.

3. The Greedy Pharmacists Argument: "The legislation contains no guarantee that the discounts will be passed down to the elderly..."

The Facts:

The retail pharmacy market is highly competitive.

Once H.R. 664/S. 731 passes and requires sales to pharmacists at the manufacturers' "best price" for outpatient prescription drugs, comparison shopping by price-conscious seniors will guarantee that pharmacies wanting to stay in business will pass along the discounts.

4. The Chutzpah Argument: "The legislation [does not] solve the real problem: the need for the elderly to have health insurance coverage for medicines."

The Facts:

Since 1969, the major obstacle to making prescription drugs a covered benefit under the Medicare program has been the pharmaceutical industry.⁹

The industry's stance has remained unchanged in this year's debate: opposition to any comprehensive Medicare benefit because they fear the purchasing power of the federal government would be used to obtain lower prescription drug prices for Medicare beneficiaries.

This year the pharmaceutical industry has allied itself with advocates of turning Medicare into an HMO voucher program. Their position is that the only way Medicare should cover prescription drugs is through private HMOs. Consider what Deborah Steelman, a lobbyist for the drug industry and HMO/drug-industry funded Healthcare Leadership Council, and a member of the Bipartisan Commission on the Future of Medicare who voted for the Breaux-Thomas plan to privatize Medicare, told the Los Angeles Times: "the drug benefit is the carrot that will get people to join the private plans. If the government's traditional Medicare plan offers drug coverage, then why would anyone join a managed care plan?"¹⁰

Seniors might very well have health insurance coverage for outpatient prescription drugs under Medicare today - and thus not need H.R. 664/S. 731's protection against retail price gouging - if it weren't for the pharmaceutical industry's decades-long opposition!

Notes

1. Pharmaceutical industry support was confirmed in 6-23-99 telephone interviews with staff at the Seniors Coalition, National Kidney Foundation, and National Kidney Cancer Association. The Healthcare Leadership Council's main sponsors include a number of major pharmaceutical companies. The Cancer Research Foundation of America's financial supporters include Pfizer, Zeneca Pharmaceuticals Group, Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson, Merck, Novartis, Pharmacia & Upjohn, SmithKline Beecham, American Home Products, Amgen, PhRMA, Rhone-Poulenc Rorer, and Hoffman-LaRoche. Back to text.

2. Telephone interview with Creative Response Concepts (CRC) staff 6-23-99. PhRMA was identified as "our client" and the names of the groups listed above were identified as "participants." Back to text.

3. Merck, Johnson & Johnson, Bristol-Myers Squibb, Pfizer, and American Home Products; rank based on sales from Fortune 500 list. The range of revenue allocated to R&D was between 9% - 16.8%; net income ranged from 13% - 25%, according to each company's 1998 Annual Report. Back to text.

4. Drug Dependency: U.S. Has Developed an Expensive Habit, Wall Street Journal (Nov. 16, 1998). Back to text.

5. 1999 Fortune 500 Industry Snapshot: Pharmaceuticals (1999) (on line at www.pathfinder.com/fortune/fortune500/ind21.html). Back to text.

6. Houlihan Lokey Howard & Zukin, Expert Analysis of Profitability (Feb. 1998). Back to text.

7. Pharmaceutical Research and Manufacturers of America (PhRMA), Leading the Way in the Search for Cures (1998) (www.phrma.org/publications/brochure/leading/index.html). Back to text.

8. Letter from the Pharmaceutical Manufacturers Association (May 22, 1990). Back to text.

9. The pharmaceutical industry was the only group to oppose the 1969 recommendations of the Health Education and Welfare's Task Force on Prescription Drugs on how to make prescription drugs affordable for Medicare beneficiaries. See Milton Silverman and Philip R. Lee, Pills, Profits, and Politics, Berkeley and Los Angeles, 1974; Donald Drake and Marian Uhlman, Making Medicine, Making Money, Kansas City, 1993; Robert Pear, "Democrats Seek Medicare Coverage for Prescription Drugs, New York Times, 21 April 1999. Back to text.

10. Los Angeles Times, January 27, 1999, p. A15. Back to text.

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