Prescription Drug Scams

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http://www.truthout.org/docs_2006/062906J.shtml

 

Prescription Drug Scams

By Dean Baker

t r u t h o u t | Perspective

 

Thursday 29 June 2006

 

The New York Times had an excellent story this week about how drug

and medical supply companies make large contributions to charitable

foundations run by physicians. To the casual observer, these

contributions look like kickbacks, given in exchange for doctors

writing prescriptions for their products and also publishing favorable

research findings.

 

This is not the first instance of corruption in the prescription

drug industry. The stories of corruption in the drug industry could

fill the Manhattan phone book. For starters, this is not the first

time the industry has been associated with kickback schemes. It used

be standard practice to hold expense-paid " seminars " at lavish

vacation resorts. Of course, there also have been instances of

straight out bribes to prescribe the right drugs.

 

The research process has also been corrupted. The industry

frequently pays prominent researchers to submit journal articles that

were drafted in the company's PR office touting the benefits of their

drugs. In their own research, drug companies will often attempt to

conceal evidence that their drugs are ineffective or even harmful, as

is alleged in the Vioxx lawsuits.

 

The industry's efforts to buy political influence with campaign

contributions and lobbyists are well-known. The Medicare prescription

drug benefit costs twice as much as was necessary because the industry

got Congress to structure the bill to ensure hefty profits for drug

companies, instead of affordable drugs to seniors.

 

The Post ran an article last year revealing how Eli Lilly's

representative in Congress (the person who represents the district in

which its headquarters is located) managed to get the company $200

million in extra profits by inserting an obscure rule for state

Medicaid plans in a huge omnibus spending bill. In the same week, the

Times had an outstanding article reporting that industry was hiring

former cheerleaders to market its drugs to doctors. With this cesspool

of corruption, the fun never stops.

 

To economists, the corruption in the pharmaceutical and medical

supply industry should not be surprising. In most industries,

competition drives prices down close to the cost of production, but in

these sectors, government-granted patent monopolies keep prices far

above costs. Drugs that would sell for $20-$30 per prescription

(without any payment from insurers) routinely sell for several hundred

dollars. In some cases, drug prescription prices run into the

thousands of dollars. That's what you can do when the government gives

you a monopoly on a drug that a patient needs to stay alive.

 

Economists know that when the government intervenes in the market

to keep prices far above production costs, it is inviting corruption.

And the pharmaceutical industry has responded to this invitation with

enthusiasm, continually finding new ways to maximize the profit from

their government-granted monopolies.

 

Drug patents do serve a purpose: they provide incentives to

develop new drugs. But, there are other ways to finance research. For

example, the federal government spends $30 billion a year supporting

biomedical research performed by the National Institutes of Health

(NIH). There are other mechanisms that could be explored for financing

drug research which would likely be far more efficient, and far less

dangerous to the public's health, than the current patent system.

 

The basic economics of drug patents are striking. The country

spends $220 billion a year on drugs. Without government patent

monopolies, it would be paying around $70 billion for the same drugs,

a saving of $150 billion a year. According to data from the industry,

this excess spending supports $40 billion a year in drug research,

meaning that the public pays almost 4 dollars in higher drug prices

for every dollar in drug research.

 

But the picture gets worse. According to the Food and Drug

Administration, two thirds of the industry's new drugs are copycat

drugs that are not qualitatively better than existing drugs. This

means that the public spends more than $10 in higher drug prices for

every dollar that the industry spends researching breakthrough drugs.

 

Wait, it gets even worse. According to data from the industry, it

costs drug companies almost 7 times as much to perform a clinical

trial as the NIH. This makes sense, if one purpose of the industry

trials is to provide kickbacks to the doctors performing the trial.

Because of patent monopolies, drug companies have little reason to

minimize the cost of their research. They use research expenditures as

a way to promote drug sales, just like any other spending. This means

that their $40 billion in research spending may be substantially

inflated due to patent-induced corruption.

 

In short, the system of patent-financed prescription drug research

has supported the growth of an incredibly corrupt and inefficient

pharmaceutical industry. The patent system is bad for the public's

health and bad for the economy and bad for jobs. If the industry

didn't own the politicians, someone would be talking about changing it.

 

Dean Baker is the co-director of the Center for Economic and

Policy Research (CEPR). He is the author The Conservative Nanny State:

How the Wealthy Use the Government to Stay Rich and Get Richer

(www.conservativenannystate.org). He also has a blog, " Beat the

Press, " where he discusses the media's coverage of economic issues. It

can be found at the CEPR website, www.cepr.net.

 

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