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How Not to Handle Health Care

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How Not to Handle Health Care

October 1, 2003
Health PolicyOther

Under the hot Mexican sun, FDA Commissioner Mark McClellan provided some cool analysis of European pharmaceutical policy. In Cancun last week, Dr. McClellan observed that European price controls for prescription drugs leave American consumers footing the bill for the industry's R&D, which is "unfair to Americans." But Europe's heavy hand also has negative effects for European patients, a reality increasingly acknowledged in governments on both sides of the Atlantic.

Only, here's the irony: While Dr. McClellan railed against price controls in Europe and EU officials debate the policy, the Bush administration may be opening the door to the idea here at home, with Medicare reform. Indeed, if legislators aren't careful, American seniors may soon find an unexpected guest in their medicine cabinets: the federal government, in a development that will limit the types of medicines they receive, with serious consequences for their health.

At present, Washington plays a modest role in the purchase of prescription drugs. Apart from funding in-hospital prescriptions for VA and Medicare patients, the federal government bears little of the nation's annual $150 billion in prescription drug costs. Yet that's about to change in a major way. If Congress agrees on the prescription drug benefit for Medicare, the federal government will soon pay for about 20-25% of America's pharmaceutics, with influence over another 15-20%. More worrisome, though, is that if Medicare reforms go forward, Washington will become the biggest funder of prescription drug purchases in the world. With such a financial stake, Medicare bureaucrats will be tempted to directly control drug costs.

Experience overseas shows that governments that pay for prescription drugs tend to involve themselves extensively in both pricing and availability. So, while the EU drug-approval process is relatively speedy, individual nations throw up their own hurdles to slow the introduction of new drugs. In a recent study, the University of Pennsylvania's Patricia Danzon found that in regulation-heavy countries like Greece, Belgium and France, new medications don't usually reach patients until nine months after EU approval.

Some drugs are delayed longer still. Taxol, a medication used to treat advanced breast cancer and refractory ovarian cancer, was approved for use in Europe in 1995, but it wasn't made available to British cancer patients on the National Health Service for another five years. Not coincidentally, a study by industry analyst Datamonitor finds that the U.K. has lower breast cancer survival rates than the U.S. and much of Europe.

Oliver Schoffski, at the University of Erlangen-Nuremberg, provides the most exhaustive review. In his recent report on European pharmaceuticals, Prof. Schoffski looks at the treatment of 20 illnesses across Europe and incorporates nearly 200 studies of how people were treated. He paints a picture of non-treatment and under-treatment for common diseases such as schizophrenia, heart disease and asthma. The reasons are complex and not exclusively related to government policies; but he finds that governments -- and specifically their funding decisions -- are a major source of the woes.

In France, e.g., 90% of patients with acute asthma do not receive adequate care, while half of all patients who should be receiving continuous basic drug therapy are prescribed medications on an ad hoc basis. One million people in Germany suffer from migraines unnecessarily, and only 5% of German women are treated with up-to-date pharmaceuticals. He finds that 83% of Italian patients who could benefit from statins, such as Lipitor and other lipid-lowering medications that reduce cholesterol and thereby protect against heart disease, don't receive them.

European bureaucrats, aren't the only ones to influence the use of medicines. In Ontario, Canada's largest province, the provincial government declined to add any new medications to its drug formulary for a full two years in the late 1990s. Even today, if a Canadian doctor wants to prescribe certain very basic medications -- such as the anti-inflammatory Celebrex, or the antibiotic Cipro -- he needs special approval first (read: forms and bureaucratic review).

Why are all these governments working to keep doctors from prescribing proven and effective medications? It's a matter of money. In Ontario, the state pays more than 40% of prescription drug costs; in Germany, public spending approaches 70%. To bureaucrats eager to keep to their budgets, new drugs are seen only as new expenses -- even if they save lives.

Will the new Medicare legislation lead to such meddling in the U.S.? In an attempt to address these worries, the White House argues that neither the House nor the Senate bill introduces price controls. While that is true, both bills do allow for price ceilings, based on the average payments for prescription drugs. And price ceilings could one day become price caps.

Indeed, in other areas of seniors' health care, Medicare bureaucrats have been only too happy to involve themselves in the micro-management of expenses. Take physician billing. Medicare doesn't pay doctors the market rates. Instead, the federal government sets its own fee schedule -- and underpays doctors. Not surprisingly, many physicians hesitate to take new Medicare patients. In places like Denver, it's hard to find a doctor for the elderly; only a third will accept Medicare patients. Hospitals, too, have long complained that Medicare fees are overly stingy.

The U.S. could avoid the European trap. By modeling reform after Congress's own health plan, the Federal Employees Health Benefits Plan, Washington would keep an arm's length from prescription purchases, since plans are independently managed. But if the government offers a drug benefit without changing Medicare's payment structure, there will be little distance between the offices of the Centers for Medicare and Medicaid Services and the nation's pharmacies.

Medicare bureaucrats will be tempted, then, to follow the lead of their colleagues in other nations: They could soon dictate what drugs will be covered, under which circumstances and at what price for seniors. That will not only affect elderly Americans. With the implications for drug profitability and thus pharmaceutical innovation, the proposed Medicare reforms may prove hazardous to everybody's health.