DRUG COMPANY officials can hardly believe their ears. Sen. Slade Gorton of Washington, a Republican, wants government to force down the prices they charge Americans for prescription drugs. He calls them "the new health-care villains."
Folks in the pharmaceutical industry should know that there is nothing wrong with their hearing.
It was only last October that the Pharmaceutical Researchers and Manufacturers of America unleashed a spry old lady named Flo on the American public. In numerous ads, Flo envisioned that government bureaucrats would rifle through her medicine chest if President Clinton's proposal for Medicare drug coverage became reality. PhRMA envisioned something else: the government negotiating lower drug prices for Medicare beneficiaries.
Medicare does not cover drugs outside of a hospital, so elderly Americans must buy their own. And because few of them belong to HMOs that obtain lower drug prices for their members, the elderly pay top dollar. (The 44 million uninsured Americans are in the same boat.) These are among the pharmaceutical industry's most profitable customers.
The Republican leadership opposed the Clinton plan as tantamount to establishing price controls on drugs. Mr. Gorton has now made the ideological leap to accept the notion that the U.S. government has a role in establishing prices for prescription medications. He voted for a Democratic proposal to make Congress set up a Medicare drug benefit before it cuts any taxes. He was joined by several other northern Republicans also facing re-election: Mike DeWine of Ohio, Spencer Abraham of Michigan, Conrad Burns of Montana, Lincoln Chafee of Rhode Island.
Voters in states on or near the Canadian border are painfully aware that they pay much more for their medications than do their Canadian neighbors. For example, a three-month supply of the breast-cancer drug tamoxifen costs $390 in Vermont and $50 across the border in Quebec. The reason for the disparity is simple. Canada negotiates the price its citizens will pay for drugs, as do other foreign governments.
The American consumer, by contrast, is on his own. The price differentials are so great that many Americans travel to Canada (or Mexico) just to buy cheaper drugs. Mr. Gorton's constituents are well represented at the border crossings.
"I was astounded to learn that for the top 10 most commonly prescribed drugs, average prices are 64 percent lower in Canada than in Washington state," the senator told the press. "That is outrageous." At some point in such discussions, the pharmaceutical executives rush for their speeches. Thanks to their wonderful new products, Americans can take pills to treat ailments that previously required the services of a doctor with a saw. The most expensive pill, they explain, costs less than the cheapest hospital stay. They also note that they need a ton of money to develop these new medications.
There is little point in arguing with these statements. The biomedical industry is indeed revolutionizing medicine for the betterment of us all.
But this doesn't address several important questions: Can drug companies charge Americans whatever they want? If it is true that they must get these high prices to pay for the tremendous costs of developing new medications to benefit mankind, why are Americans the only ones paying them?
Finally the question that drug companies are most loath to answer: Even taking into consideration the high costs of R&D, are the drug companies in fact grossly overcharging the U.S. consumer?
Pharmaceutical companies are wildly profitable. Their after-tax profits on sales are three times the average for American industry. And the taxpayer already subsidizes the drug industry in numerous ways, through special tax breaks and government-funded research in biomedical science.
Reacting to Mr. Gorton's latest initiative, a lobbyist for the pharmaceutical giant Glaxo Wellcome said this in a memorandum: "No matter what Senator Gorton is calling this proposal, it's plain and simple a price-control bill." She heard that right.
Froma Harrop is a Providence Journal editorial writer and columnist.