[Ip-health] Why US drug firms want us (Aussies) to swallow their bitter trade pill

[Robert Weissman]

Why US drug firms want us to swallow their bitter trade pill,
Sydney Morning Herald January 27, 200


Australians are being pressured to cough up in order to protect an
unhealthy cartel, write David Henry and Evan Doran.


Twelve days ago Nancy Pelosi, Democrat leader in the United States
Congress, and eight House Democrats wrote to President George Bush
expressing concern about his Administration's "effort to modify
Australia's national pharmaceutical reimbursement program". Writing in
The Guardian, David Fickling warned that "US pharmaceutical firms are
using Australia's public medicine supply scheme for target practice".


As we slumber through an Australian summer, it sounds as though they are
trying to tell us something.


Our Pharmaceutical Benefits Scheme (PBS) is still on the negotiating
table at talks for a free trade agreement. The talks are reported to be
at risk of collapse. What proposals have been made by the US trade
representative? Well, that's a secret, but the details have been seen by
the US congressmen and they sound worried.


The US demands appear to be the same as those made by the drug
companies; the Democrats warn the proposal is "likely to raise [drug]
costs both for the Australian Government and its citizens". (Adoption of
US prices in Australia would increase the existing drug bill by about $1
billion a year.)



They worry that a number of elements in the proposal will raise drug
prices in the US if applied there. Remember this is the country that
already has the highest prices and poorest access in the developed
world.


So why are the international drug companies, with an annual turnover of
about $520 billion, keen to undermine the PBS, which represents only 1
per cent of their market?


There are probably two main reasons. The drug companies view the
Australian system of reference pricing of drugs as a significant threat,
and if they can win concessions from the Australian Government it will
set a precedent for future trade deals the US negotiates with other
countries.


The latter is important, as the drug companies have not got everything
they desired from recent World Trade Organisation negotiations and they
want the US Government to use its muscle on their behalf in forthcoming
bilateral trade deals.


In making recommendations to the minister about whether a new drug
should be listed on the PBS, the Pharmaceutical Benefits Advisory
Committee (PBAC) considers its efficacy, safety and cost relative to
other drugs already listed for the relevant clinical indication. If the
new drug offers no clinical advantage it can be listed, but usually at
the same (or lower) price as the "reference" product.


If the research data shows that a new drug is superior, it may be
offered at a higher price if the clinical gains justify the higher
costs; in other words, if it offers value for money.


The drug companies consider this a restrictive practice and want the
freedom to set higher prices to recoup their development costs. They
argue that Australia is not paying its fair share of drug development
costs and is free riding on the backs of American taxpayers. They are
also worried that the US Medicare, which provides health care for the
over-60s and in future will include pharmaceutical benefits, may some
day adopt a version of the Australian pricing scheme.


There are a number of problems with these arguments. It is silly to
dissociate drug prices from clinical performance. A drug may be
expensive to develop but perform poorly. If the price is high, money
will be wasted that would be better spent on other more effective or
cheaper treatments.


Second, drug development costs are not as high as the companies claim
and are no greater than those borne by some other industries.
Pharmaceutical manufacturers are enormously profitable, consistently
ranking at the top of the Fortune and Global 500 lists. Actual
manufacturing costs of drugs are estimated to be less than 10 per cent
of the selling prices, and this has allowed the industry to make lazy
profits and spend huge sums lobbying politicians.


Protected by their profits, they are inefficient, with high
administration and marketing costs, double what they spend on research
and development. True competition is rare and international companies
have featured prominently in court cases,  usually for anti competitive
behaviour. Their profitability has been accompanied by considerable
aggression and they have been quick to take legal action, for instance
against members of the PBAC and the South African Government , when they
did not get their way.


So the demands from the US trade negotiators are part of a concerted
campaign by the drug industry to maintain unhealthy profits and avoid
true competition. While recent reports suggest there are still
significant obstacles to overcome in the FTA negotiations, there is a
continuing risk to the public medicine schemes.


We can only hope that the Australian negotiators see through these
spurious arguments and do not trade an essential part of our public
health system for a few tonnes of sugar.


David Henry, a professor of clinical pharmacology at Newcastle
University, is a member of the South African drug pricing committee and
former member of Australia's Pharmaceutical Benefits Advisory Committee.



Evan Doran is a researcher at Newcastle University.