More Money for More Health


May 08, 1991|By BEN WATTENBERG

Scottsdale, Arizona. -- They weren't talking much about the recession here at the meeting of the Pharmaceutical Manufacturers' Association. The pharmaceutical industry is the most profitable business in America. There is good news and bad news about that.

The bad news is that the corporate prosperity is derived, in part, from some consumer drug prices, which are perceived to be very, very high. Sen. David Pryor, D-Ark., calls the pharmaceutical folks ''robber barons'' in a tone usually reserved for other kinds of drug kingpins. Rep. Henry Waxman, D-Calif., says the drug lords can sometimes be ''a greedy bunch.''

The good news from Roy Vagelos: There will soon be a new drug to shrink enlarged prostates, eliminating much surgery. Coming later in the '90s: drugs for osteoporosis, asthma, many kinds of cancer, depression, hepatitis, chicken pox, Alzheimer's and the common cold. By 1995, there should be a drug to halt the AIDS virus.

Dr. Vagelos is a physician, biochemist, researcher and now chief of Merck, an incredibly successful company already working on many of those drugs.

So are Merck's competitors, big and small, pouring ever-bigger buckets of cash into research and development. Drug companies spent $2 billion on R&D in 1980. They spend $9 billion now. R&D as a percent of sales has gone from 12 percent in 1980 to 17 percent in 1990 -- compared to 3 percent for all U.S. industry.

Why so much activity? Well, a big new drug can generate more than $1 billion dollars in sales. Per year. And so, in 1990, the pharmaceutical industry's total return to investors was 19 percent, twice as high as the nearest competitor (beverages).

The Pharmaceutical Manufacturers' Association says that without big profits there can't be new drugs, and that it costs $220 million to develop big drugs, some of which don't pan out. An apparently promising drug for Parkinson's also produced testicular cancer in laboratory rats. A few $220 million hits can drive a company broke.

Other parts of the medical establishment are also doing their thing with prices, profits, products -- and big human benefits. A magnetic resonance imager can cost $3 million dollars. MRI pictures cost a patient about $700. But diagnosticians now see spinal cross sections that are breathtaking. Hospital costs soar. So do doctors' fees.

The politicians mutter ''health inflation.'' Indeed, the share of GNP going to all forms of health care has gone from 6 percent in 1965 to 12 percent in 1990, and it is rising. Because health care is so expensive, health insurance is more expensive. Some corporations have cut back on benefits. Some people are unprotected. The elderly are worried. There is waste and inefficiency.

How do you keep the golden goose and see to it that folks can afford the golden eggs? Perhaps we should start by re-examining the phrase ''health inflation.'' Inflation is when you pay more for a similar product or service. But what's now new, is not similar. Merck's prostate drug didn't use to exist.

Health inflation is not all bad. An increasingly affluent nation ought to re-order priorities, allowing people to live longer, healthier lives. What should we use our added affluence for? Cosmetics?

But how can everyone share the blessings of modern medicine? The government can try to do it, but it doesn't work well.

Or we can mandate an expansion of American-style private medicine paid for through private health-care insurance, typically provided by employers. Such new mandates may cause further ''inflation'' when companies pass along costs to consumers. But the result can be better health for more people at more reasonable costs.

Mr. Waxman, chairman of the House Subcommittee on Health and the Environment, plans to introduce legislation along those lines shortly. He hopes to get cooperation and leadership from the White House.

It could work -- if it keeps alive the one key miracle ingredient that has engendered the new drugs and new procedures: profit.

Ben Wattenberg, of the American Enterprise Institute, was a speaker at the Pharmaceutical Manufacturers' Association.

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