[Ip-health] A Drug Deal Gone Bad - by Sean Flynn and Sharon Treat in Tompaine.com

[Mike Palmedo]

http://www.tompaine.com/articles/2007/03/30/a_drug_deal_gone_bad.php

A Drug Deal Gone Bad

Sean Flynn and Sharon Treat
March 30, 2007

This week the United States and South Korea are finalizing a free trade
agreement which, unbeknownst to Congress or the public, could jeopardize
state programs that provide medicines for America=92s poor and elderly.

Since negotiations began in June 2006, the United States Trade
Representative (USTR) has been doggedly attacking South Korea=92s public
drug reimbursement formulary as a potential barrier to trade. In
December, the Korean universal health insurance program began requiring
drug companies to negotiate with the government to be placed on a
=93positive list=94 of preferred drugs for reimbursement. The list prefers
generic and lower-priced medicines, raising the ire of the brand name
pharmaceutical industry in the U.S.

Wendy Cutler, the chief U.S. negotiator of U.S.-Korea trade talks said
at the time:

We don=92t believe this proposed change in the Korean system toward a
=91positive list=92 will achieve the objective that Korea has stated for
itself. We believe the proposed system would end up discriminating
against and limiting the access of Korean patients and doctors to the
most innovative drugs in the world.

In response, the USTR suspended negotiations with Korea and threatened
to end talks unless Korea adopted substantive and procedural changes to
its reimbursement program.

This is not the first time that U.S. trade negotiators have sought
concessions from Korea to raise their drug prices. In 1999, Korea was
pressured into an agreement under which =93new innovative drugs=94 were
subject to =93A-7 pricing,=94 i.e. the average price of the same drug in
United States, United Kingdom, Germany, France, Italy, Switzerland and
Japan. Korea, however, has an average income per person of only about
$16,000 per year=97less than half of the other A-7 countries. In effect,
Korea pays far more for brand name drugs as a percentage of per capita
income than any of the other A-7 countries. Indeed, many brand name
drugs in Korea come at a price even higher than the U.S. government pays
for the same drugs. The life-saving leukemia drug Gleevic, for example,
costs over $52,000 a year in Korea, but only $28,000 to the U.S.
Veterans Administration.

Moreover, the USTR=92s latest demands won=92t just raise prices in
Korea=97they may raise prices in U.S. states. This is because Korea=92s dru=
g
formulary is substantially similar to the =93preferred drug lists=94 used b=
y
at least 40 American states for Medicaid purchases. Adjusted for
inflation, Medicaid spending on pharmaceuticals by state governments
declined in 2005, while overall national drug spending increased at
double the rate of inflation the same year, and by over five times since
1994. But the federal government can sue states to preempt laws and
programs that conflict with FTAs. Thus, whatever is required of Korea in
the FTA may apply to states as well.

According to documents obtained by the non-profit Consumer Project on
Technology, several officials within the State Department have been
raising similar concerns. In a 2003 memo, one official wrote

FDA and HSS have been involved in analyzing the PhRMA proposals [to
restrict Korea=92s formulary] and have found a number of their suggestions
to be problematic from the standpoint of U.S. domestic practice.

Another official wrote that U.S. states =93are taking the same approach
the [Republic of Korea Government] is taking: containing the costs by
scrutinizing prescription drugs, particularly brand name drugs.=94

Unfortunately, no member of Congress at the March 20th Ways and Means
hearing on the US-Korea FTA demanded that the USTR refrain from
negotiating away U.S. state programs that control the spiraling costs of
medicines. As a result, the pharmaceutical industry may achieve in
stealthy trade negotiations what it has failed to do through millions of
dollars spent opposing and challenging the country=92s most effective drug
spending control measures.

-------

Sean Flynn is Associate Director of the Program on Information Justice
and Intellectual Property at American University Washington College of
Law and Counsel to the Forum on Trade and Democracy. Sharon Treat is a
Maine State Representative and a member of the Maine Citizen Trade
Advisory Commission.