Why is the U.S. So Far Behind on Prescription Drug Price Controls?

Largely because there are more pharmaceutical industry lobbyists in Washington than there are members of congress, the idea of having price controls in the Medicare prescription drug benefit law that just was passed — so that the drugs could actually be affordable — was quickly killed.

But in other countries such as Germany and, for that matter, almost all developed countries, price controls are a fact of life. Nevertheless, the pharmaceutical industry never tires in its efforts to undermine such controls.

In the March 27th issue of the British Medical Journal, the latest defeat for the pharmaceutical industry is discussed:

“The European Court of Justice has ruled that Germany’s state health insurance associations are entitled to set the maximum price that they will pay for drugs. Europe’s highest court, which is based in Luxembourg, said that Germany’s system, in which state health insurance associations can determine a price ceiling for drugs, does not break EU laws on competition. This is because such associations cannot be considered to be companies operating in the free market but rather are government agencies that act as guardians of the public health.

“Groups of health insurance funds, such as the German Health Insurance Fund Association, do not constitute enterprises or associations of enterprises as understood under EU competition rules,” the court said.

Germany’s health insurance associations welcomed the court’s decision. A spokesman for Berlin’s health insurance associations said that the practice of setting ceilings on the price of drugs had proved to be the most effective way to control the rising cost of medicines. He said that the associations expected to save as much as 2.5bn euros (£1.7bn; $3.1bn) in 2004 because of it.

The Social Democrat health minister, Ulla Schmidt, also had strong praise for the court’s ruling, saying that it provided a “sound foundation” for the continuation of the German system. She said that the ruling had shown “beyond all doubt” that EU antitrust laws cannot be applied to the 350 state health insurance associations in Germany.

Germany introduced legislation in 1989 obliging the associations to agree on the maximum prices they would pay for drugs in a bid to keep down healthcare costs. The associations, which provide health insurance to more than 90% of the German population, reimburse patients for the costs of drugs. Patients who spend more on a drug than the upper limit specified by the associations have to pay the difference themselves.

The case came to the European Court of Justice after drug companies challenged the German system. The companies had argued that the system kept drug prices too low and so cut into the profits available to them for drug research and development.

Sounds familiar, does it not? Whereas Germany has rejected the idea that the pharmaceutical industry, with its extraordinarily high profit margin, does not have enough money to develop drugs even with controls on prices, we are far behind in the U.S. One crucial difference is the power of the drug lobby in Washington. In 2003, according to Public Citizen’s Congress Watch, the drug industry spent a record $108.6 million on federal lobbying activities and hired 824 individual lobbyists — both all-time highs. In 2002, based on a more narrowly defined survey, the drug industry spent $91.4 million and hired 675 lobbyists. Add to this tens of millions of dollars a year in campaign contributions from the pharmaceutical industry to members of Congress and it is quite apparent how and why our “democratic” system is under the influence. It is time for a major change!