6 November 2003
by Wyn Snow, Managing Editor
Skyrocketing public health costs are bankrupting individual Americans and posing serious challenges to city, state, and federal budgets. The high cost of prescription drugs may be only the tip of the iceberg—but it’s also the most visible and easiest to attack.
While Congress debates legislation, Americans are already voting with their checkbooks—going to Canada and Europe to buy prescription drugs. Increasing numbers of Americans are also choosing lower-priced supplements rather than expensive prescription drugs as their first line of defense against illness.
Yet the FDA is fighting both initiatives—saying they cannot guarantee the safety of imported drugs, and challenging both the safety and effectiveness of many dietary supplements.
The high price of drugs in America acts as a defacto subsidy of lower prices in other countries. Why should Americans carry such a disproportionate burden? Especially when that burden falls most heavily on the elderly, many of whom live on fixed incomes and are forced to choose between pharmaceutical drugs that will prolong their lives and the immediate necessities of life: rent, food, heat, electric power, telephone service.
In these murky waters, what are the facts about drug prices and safety risks of imported drugs? How does price regulation affect drug research? Why are prescription drugs so expensive? What alternatives exist for reducing their cost? And how do these issues impact dietary supplements?
Option 1: Crossing the border
Americans have been crossing the border to Canada for lower-cost prescription drugs for a decade or more, even though it is illegal to buy drugs abroad and bring them into the US. Only pharmaceutical manufacturers may import such products.
The FDA has turned a blind eye to busloads of Americans going north. William Hubbard, FDA associate commissioner, explains “it’s so uncompassionate to go after patients.” He says the FDA understands the price concerns, but says imports expose Americans to potentially counterfeit or expired drugs—and that FDA cannot guarantee the safety of drugs from foreign countries.
How dangerous are these “foreign” drugs?
According to William Faloon, director of the Life Extension Foundation, “Many of the active ingredients for drugs sold in the US are actually synthesized in the very countries the FDA says you cannot trust. Drug companies import these active ingredients into the United States where they wind up in the expensive drugs you buy at the local pharmacy.”
Canada’s Health Minister, Anne McLellan, says that Canada has “some of the highest drug-safety standards in the world.”
CanadaDrugs.com is one of the largest exporters of drugs to the US. Their director of pharmacy, Robert Fraser, echoed the Health Minister’s confidence in the safety of Canadian drugs, saying, “The products we use are all approved by the Canadian version of the FDA. Anybody can come and see for themselves. We’re very transparent.”
FDA seeks to shut down Internet imports
Even for drugs originally manufactured in the US, the FDA is less tolerant of citizens using the Internet instead of the highways to reimport such drugs from abroad. On September 4th, the Justice Department filed an injunction against Rx Depot, an Oklahoma-based storefront & Internet business, asking a judge to stop it from importing drugs from Canada.
Rx Depot owner Carl Moore says he is “on a crusade” to make lower-cost prescription drugs available, and has vowed to defy the law and continue business. Moore’s lawyer, Fred Stoops, believes the importation regulations violate both the antitrust laws and the North American Free Trade Agreement. The first court hearing on this case was held on October 8th in Tulsa OK; a decision can be expected after October 31st.
Mayors and governors join the “busloads to Canada”
The city of Springfield, Massachusetts has already begun buying drugs in Canada for city workers and retirees (up to 9,000 are eligible). Mayor Michael Albano says potential savings could reach $9 million per year. He characterizes the FDA’s talk of health risks as disingenuous, saying, “How many Canadian citizens have been harmed by counterfeit medicines? Let’s get real here. That’s not an issue, and you know it’s not an issue.”
This grass roots rebellion is spreading. Mayor Albano has received inquiries from state governments in California, Connecticut, Indiana, Michigan, Nebraska, North Carolina, as well as other towns in Massachusetts.
Illinois Governor Rod Blagojevich has authorized a study on purchasing Canadian drugs for its 240,000 state employees and retirees. Illinois’ drug budget rose 15% to $340 million this year, and is projected to rise another 17% next year. Blagojevich says, “It doesn’t matter where you go in our state, you meet people who are struggling with the cost of prescription drugs. If you can buy the same drug made by the same company, and it is safe and it costs less, then that makes sense.”
Congress debates legislation
In two previous years, Congress passed legislation that would allow re-importation of prescription drugs, but both bills required the secretary of the Department of Health and Human Services (HHS) to certify the drugs were safe before proceeding. HHS secretaries in both the Clinton and Bush administrations (Donna Shalala and Tommy Thompson respectively) declined to do so.
Congressman Gil Gutknecht of Minnesota introduced the Pharmaceutical Marketing Access Bill (House 2427), which was passed by the House in July 2003. The Senate also passed similar language in an amendment to the Medicare Bill. A conference committee is now debating how best to merge the differences into a single piece of legislation, and the results should become available within a few weeks.
Concerning this bill, Gutknecht points out that pharmaceuticals are the only product in the US to have such strict import limitations and that closed markets inevitably lead to artificially high prices. Gutknecht says, “We are a blessed country with a lot of wealth, so we should help make prescription drugs more affordable for developing countries, especially Africa. But subsidizing the entire world and ‘the starving Swiss’ does not make sense. Americans deserve to have a more fair system so we’re not shouldering the entire burden.”
According to Gutknecht, “In a day and age when we import millions of pounds of food daily we certainly can import highly controlled products such as pharmaceuticals.” And on the issue of safety, “Would anyone at the FDA seriously propose that the only way to ensure the safety of imported food is to ban importation?”
How much lower are foreign drug prices?
“A bottle of tamoxifen, used to fight breast cancer, costs $360 in the United States. It costs $60 in Germany,” according to Representative Jo Ann Emerson of Missouri.
The US is the only industrialized nation where prices are unaffected by government regulation. Canada sets a ceiling on the price of each drug. These caps are linked to European price controls, most of which are linked to one another. For example, Dutch prices are an average of those in four other countries, while Greece requires a drug’s price to be the lowest of any other price in Europe.
However, price controls are not the only reason why prices are lower abroad. Canada and other single-health-care entities enjoy the economies of scale that result from buying in massive quantities and negotiating directly with drug companies.
A casual survey by SupplementQuality.com and a more extensive effort by the Life Extension Foundation indicate that drug prices vary widely. Searching the Internet is a good strategy for finding the lowest price, both within the US and overseas. Generally speaking, the Canadian price of a drug can be as low as one-eighth of US prices, and European prices as low as one-sixth—although both can also be as much as double the US price. (See detailed price comparison.)
Dietary supplements also a cost-effective alternative
For health issues where dietary supplements are useful, the daily cost often runs from 10% to 25% of pharmaceutical alternatives.
Why are drugs so expensive?
The Life Extension Foundation investigated the cost of generic ingredients in sixteen prescription drugs—and discovered they vary from a few pennies per tablet to a few pennies per hundred tablets. Prices for these same products range from 2,800% to 570,000% higher (see the real cost of drugs)—but drug profits are only about 15% of the purchase price.
Where is the other 85% going? Some goes into manpower, advertising, and other ordinary business costs—but the vast majority is spent on research. The pharmaceutical industry claims that lost revenue from price reductions would constrict funds available for research—thereby slowing innovation for new drugs that could help patients with incurable diseases.
Why is pharmaceutical research so expensive?
Finding one successful new drug means investigating roughly 67 to 100 possible compounds. The following table shows the stages of drug research and how they winnow the candidates down.
|Testing with animals and human cells in test tubes
|Testing for safety in healthy people (clinical phase I)
|Testing for effectiveness (clinical phase II)
|Wider testing for effectiveness (clinical phase III) and FDA approval
[Adapted from Millennium Pharmaceuticals, 1999.]
Cost estimates for developing a single new drug range from a minimum of $250M to as much as $900M. The most-often cited cost is $500M.
Impact of embracing cost-regulation
Importing drugs from Canada or Europe can certainly reduce their cost for individual consumers and health organizations as well as city and state government, but would have other, more troubling consequences. Cost-regulation rarely works in the long term. It merely clamps a lid on burgeoning costs and creates a “pressure cooker” effect. The steam of rising costs has to go somewhere—and companies are even more likely than consumers to “vote with their feet.”
Until recently, European pharmaceutical companies dominated new drug development. With the advent of price controls, the leading edge of pharmaceutical research has shifted to the US. Unfortunately, innovation will suffer if the US embraces the cost-regulation that is inherent in European and Canadian drug prices.
However, innovation is already suffering from the high cost of drug research, which has two vital ramifications:
- Only large companies with vast resources are able to undertake new drug research.
- The only attractive targets of new drug research are for diseases or conditions affecting many people, or for maintenance drugs that patients need to take every day for the rest of their lives (examples being diabetes and high blood pressure).
In other words, the more rare the disease, the lower the likelihood of ground-breaking drug research to cure it. Even though a single rare disease affects a small number of people, there are thousands of such diseases. Taken as a group, the American Medical Association (AMA) estimates that 10% of the overall population suffers from rare diseases.
Similarly, the less chronic the disease, the less incentive there is to develop a “one time cure” pharmaceutical.
Another troubling trend documented by recent TV exposes is that drug research increasingly focuses on discovering compounds similar to those that already exist—such as new statins or new beta-blockers—rather than investigating entirely new fields. Finding a molecule similar to already proven drugs is easier, cheaper and less risky than finding altogether new substances.
Whether price regulation is adopted directly or by importing drugs from countries using regulation, the end result is constrained innovation—yet the continued explosion in the cost of pharmaceuticals is equally unacceptable to Americans. This lose-lose situation prompts a new question: Is there another way of reducing the cost of drugs?
Option 2: Reform the FDA approval process
Prior to 1962, the FDA-approval process for a new drug stopped with testing for safety (phase I clinical research). Restoring this standard would cut the cost of research roughly in half, thereby cutting the cost of drugs like tamoxifen from $360 per bottle to somewhere between $145 and $200—without any price regulation whatsoever.
Would these new drugs be effective?
Nobody wants to spend $145 or more for a substance that doesn’t work better than a placebo. So how would we test the effectiveness of new drugs? One method is to open this phase of clinical research to any patients who want to try the new drug, and creating a database system to assist physicians in tracking success versus failure.
Are current drugs more effective than pre-1962?
At least two studies have concluded that drugs introduced before 1962 were, for the most part, as effective as drugs approved after 1962. In other words, the increased time and cost of research required for obtaining FDA approval has not resulted in safer or more effective drugs.
Two private market forces exert a powerful influence on companies in bringing new drugs to the marketplace: the importance of having a good reputation (which is harmed by creating either unsafe or ineffective drugs), and the potential for lawsuits, especially in these litigious times. These two factors, combined with private organizations and endeavors that review use of drugs—such as AMA Drug Evaluations, American Hospital Formulary Service Drug Information, and U.S. Pharmacopoeia Drug Indications—worked to ensure that pre-1962 drugs were roughly as effective as those of today.
Hidden consequences of the current FDA approval system
Doctors Daniel Klein and Alexander Tabarrok of The Independent Institute point out that “Even after extensive testing, the safety and effectiveness of a new drug are always somewhat uncertain.” They describe two kinds of errors that can occur:
- FDA approves a drug that is not safe or effective.
- FDA rejects or simply delays a drug that would be valuable for patients.
The FDA is strongly motivated to avoid type 1 errors—these deaths and disabilities get a lot of media attention—but has no motivation at all to avoid type 2 errors, which are almost invisible to the media.
What are the consequences of type 2 errors? People die from not having access to drugs that might save them. The most highly visible example is delays in processing drugs for treating HIV. Only the well-publicized protests of HIV patients and activists prodded the FDA into streamlining its approval process.
How many people are dying from lack of access to potentially life saving drugs?
This invisible epidemic is estimated to number at least hundreds of thousands of people. Delays in approval for just two beta-blockers (which were available in Europe several years before the US), probably led to several tens of thousands of deaths from heart attacks. Other medicines and devices that were available for at least a year in Europe before being approved in the US are Ancrod, Citicoline, Ethyol, Femara, Glucophage, Interleukin-2, Lamictal, Navelbine, Omnicath, Panorex, Photofrin, Prostar, Rilutek, Taxotere, Transform, and Vasoseal.
And these are only for drugs whose names are known because they were approved. What about type 2 errors where a useful drug was rejected? Returning to the pre-1962 standard of proof of safety would give Americans and their doctors wider freedom of choice in treating life-threatening illnesses, and would hasten vital knowledge about new approaches and treatments for cancer, heart disease and strokes, diabetes, and genetic diseases. More lives would be saved sooner.
The FDA also prevents dying patients from trying new drugs and treatments that might save them until they have exhausted all currently approved methodologies. In the case of cancer, however, some chemotherapy and/or radiation treatments can make a tumor more resistant to new experimental treatments, thereby affecting the fundamental research itself and possibly sabotaging a treatment that might save a patient’s life.
When does the banner of consumer protection become a garrote?
The debate on reforming our health system is framed as runaway prices versus patient safety, but a far more basic issue is at stake—namely who decides what treatment a patient will receive?
Established in 1906 to protect public health from diluted and adulterated foods and drugs, the FDA is still using nineteenth-century technology—bureaucratic red tape—to attack twenty-first century problems. Today, the environment is one of increased globalization and vanishing international trade barriers. Americans are entitled to seek out the best medical care and the best prices they can find anywhere in the world—both inside and outside our borders.
Decisions about which drugs and treatments to use—including new drugs, off-label uses of existing drugs, and alternative treatments including supplements—are best placed firmly in the hands of patients who need them and doctors with expert knowledge about drugs and treatments. FDA bureaucrats are motivated primarily to keep their lucrative pharmaceutical industry user fees and to avoid media exposes and Congressional hearings into type 1 errors.
By acting as the sole arbiter on whether a drug is effective and whether a dying patient can or cannot try a new experimental treatment, the FDA is saying, in essence, that doctors are not competent to decide which drugs to recommend for treating a patient, and that patients are not competent to participate in decisions about which therapies to choose. The FDA is wrong on both counts.
|“If people let the government decide what foods they eat and what medicines they take, their bodies will soon be in as sorry a state as are the souls who live under tyranny.” —Thomas Jefferson
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