- The Washington Times - Friday, January 5, 2001

The high cost of prescription drugs was a dominant theme of the presidential campaign. Al Gore made the pharmaceutical companies, whom he called "vermin" and "rats in the barn" a major liability for George W. Bush and many Republican congressional candidates. Drug prices were a major factor in the loss of three Republican seats in the Senate and several in the House. For the Mercks, Pfizers, and Glaxos, this election was a lose-lose proposition.

In the years ahead the pharmaceutical industry faces a huge challenge defending free market drug pricing. Unless it does a better job marketing itself, we may get price controls that, by slashing profits, will impede drug development and thereby condemn millions to unnecessary suffering and premature death.

Drugs are expensive chiefly because the cost of researching and developing better replacement drugs is built into their prices. High drug prices reflect the high cost and risk of innovation. Stop innovation and within 15 years most current patents will have expired; prescription drugs will then become generic commodities, like aspirin and vitamin C, affordable to nearly everyone.

The same principle applies to other high technology products. Stop or slow software and computer innovation, and prices will fall. Persuade the Department of Defense to rest content with current weaponry, and arms expenditures will drop. However, we value high technology along with the new wealth it brings, and few want to see our foreign competitors overtake us militarily. We pay the cost of most innovations with little complaint for we understand that innovation ultimately gives us more for our money and we realize that innovation is essential to maintaining prosperity.

Yet when it comes to the cost of new and better drugs, we hear endless complaints from the public and indignant demands for price controls from politicians. Why is it so much easier to sell innovations that protect and increase our wealth than those that protect and improve our health? The answer lies in the unique disadvantages the drug industry faces.

Unlike computer innovations, drugs to keep people alive are deemed a necessity. People resent paying top dollar for any necessity and are quick to condemn as greedy and heartless the seller who charges all the traffic will bear. Breakthrough drugs often take longer to develop than breakthroughs in other areas, and they help only people with a specific disease, usually a small minority. A cure for the common cold would benefit all, but more feasible advances, such as a better drug for kidney cancer, Alzheimer's, or AIDS, benefit only a few.

Although pharmaceuticals relieve sickness and suffering, unlike a new car, a home theater, or the latest computer, they give neither pleasure nor status. The materialist within always reminds us of the ego-rewarding things we could buy with the money spent on that "little box of pills." Furthermore, many drugs have bad side effects and none come with guarantees.

Finally, the pharmaceutical industry is fragmented and fiercely competitive. No drug company enjoys the market dominance held by Cisco, Intel, Microsoft or AOL. Each of these disadvantages can be overcome. The pharmaceutical companies have not overcome them chiefly because they lack a coherent long-term strategy. Obsessed with the current quarter's bottom line, they rely on crisis management. Crisis management is defensive and opportunistic. It is geared to maximizing short-term gains by postponing the big problems and by accepting myopic compromises that risk long range damage.

Crisis management and the drug companies' highly competitive nature makes them prone to marketing excesses and dubious public relations practices. When liberals from health care nonprofits demagogue their "greed," the companies lavish grants on their detractors. Their self-defeating "generosity" confirms the liberal belief that the companies are "sleazy," and proves that, since the squeaky wheel gets the oil, they must keep crying "greed" to keep the grant money flowing. Hush money to liberal critics is only the tip of the drug industry's iceberg of payoffs which extends to doctors, researchers and others who can influence market choices. Fuller disclosure would help the companies clean up their images. Notwithstanding, they remain secretive which further exacerbates the public's suspicion and distrust.

Consequently, the pharmaceutical industry's compelling case against price controls is handicapped by its bad reputation. High prices and profits at the expense of the sick and dying along with debatable practices and habitual secrecy have bred an epidemic of rancor that has spread through the entire electorate.

Republicans oppose drug price controls on free market principles. This, however, is only one of their many commitments. Republicans cannot defend any commitments if they are not re-elected. While drug company PACs favor Republicans, their marketing and public relations divisions make massive contributions to highly political nonprofits far to the left of Hillary Clinton and Al Gore. These nonprofits, fat with pharmaceutical largess, in turn oppose free market policies and work aggressively to defeat Republican candidates.

Republicans have begun to flinch at the cost of defending an industry that is resented by seniors and distrusted by most voters, an industry that resists disciplining itself to improve its practices and reputation. They know that the pharmaceutical companies owe their enviable profits to America's unique freedom from price controls. Had Bill Clinton instituted Hillarycare in 1994, today these companies would be adrift in a regulatory Sargasso along with big tobacco. To avoid that crippling fate, they must change their image and convince the voters that medical innovation requires a free market.

If price controls are instituted, most Americans will lose and suffer, above all the old and the sick. For the sake of their shareholders and for the good health of everyone, the pharmaceutical companies need to wake up.

James Driscoll is national AIDS policy adviser to the Log Cabin Republicans.


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