No Easy Solution for Drug Prices

Ray and Gaylee Andrews, both 74, hold part-time jobs to pay $800 a month for medicine. But those jobs no longer cover the costs and in order to make ends meet, they must sell their Elk Grove, Ill., home, in which they have lived for 34 years.

But they think they may have another solution to their predicament. With the backing of Illinois Democratic Gov. Rod Blagojevich, the Andrews have filed a class-action lawsuit in U.S. District Court in Washington D.C., contending that the 2003 Medicare legislation is unconstitutional because it prevents them from buying cheaper drugs in Canada.

The Andrews, who are being represented pro bono by prominent Chicago trial lawyer Robert Clifford, are not seeking monetary damages. They want to get the provisions of the law that bar drug importation to be judged unconstitutional. That way, they could just order their drugs from Canada, which is now illegal to do. The Andrews do not want to break the law, said George Bellas, another lawyer on the case.

"They wanted to establish a precedent. They wanted to see a change in the existing policies," Bellas told

The Andrews' fight represents not only a personal financial problem, but a nationwide issue for seniors who say the cost of prescription drugs is too high. And it's not just a problem for private citizens. Health policy experts say that the high cost of drugs is creating an additional burden on the already deeply-tapped Medicare system, which just added a prescription drug benefit, and the government needs to start looking at long-term options for reducing costs.

"The trustees conclude that we need timely and effective action" to reduce Medicare's bloating budget, said Richard Foster, chief actuary for the Centers for Medicare & Medicaid Services (search).

Not surprisingly, Foster said Medicare's latest annual fiscal report, released at the end of March, shows that the cost of drugs are the fastest growing expenditure in the program.

"These problems ought to be addressed sooner rather than later on the grounds that early solutions can be implemented more gradually," he said.

The experts say Medicare drug costs could be reduced if lawmakers allow drug reimportation, large-scale negotiated drug prices and continuing cost-benefit analyses to determine which drugs ought to be covered by the program. 

But drug companies say they are wary of all the proposals on the table to lower the price of drugs, and argue that when drugs are used as preventive medicine, the system saves since less money is spent on other forms of health care.

"Someone having a heart attack, having to go into a hospital, stay in the hospital, the total cost of that compared to preventing a disease in the first place, the economic effects are enormous. The cost of a prescription drug to lower cholesterol pales in comparison to the effects of having a heart attack," said Court Rosen, spokesman for the Pharmaceutical Research and Manufacturers Association (search).

The argument doesn't wash with everyone.

"You have to provide the screening test and the drug to everyone who's at risk. Some small fraction would be beneficiaries. Most of the time the cost that has been incurred far outweighs the cost that’s saved from preventing people from having an acute episode," said Helen Halpin, director of the Center for Health And Public Policy Studies at the University of California, Berkeley (search).

Halpin and other experts say re-importation of drugs — the Andrews' solution  — may provide short-term relief, but a better way to lower drug prices over time is to negotiate with the drug companies as other countries do.

"There's no reason given the size of the [Medicare] program why the federal government should not be able to negotiate as good if not better a price than other countries get. It's ridiculous," Halpin said.

"One would expect that if we began to legalize re-importation what is going to happen is drug companies are going to raise the prices that they charge to other countries and lower the prices that they charge to everyone here," said Robert Reischauer, president of the Urban Institute (search), who qualified the outcome by suggesting that the savings would be relatively small.

Halpin said Congress erred when it wrote into the new Medicare law that the federal government cannot negotiate lower prices with the drug companies. She called this provision an "extraordinary gift" to the pharmaceutical companies.

She said that Medicare could have followed the model of private health insurance and negotiated discounts of 30 to 40 percent. Instead, Medicare has chosen to buy the drugs at the prices set by the company.

But Joe Antos, a scholar at the American Enterprise Institute (search), said any efforts by Washington to negotiate lower prices en masse would be the same as setting price controls since, with the new law, the government controls at least 40 percent of the market share on prescription drugs. The effect on the drug industry — and consequently consumers — would be a big negative.

"If you had price controls, the huge pool of resources that the big pharmaceuticals accumulate would begin to shrink, and therefore less money would go into research," Antos said. There would be "a change in the mix of products that came newly on the market away from blockbuster drugs. That would be a tremendous loss."

Halpin and Reischauer say most health insurance companies pay for drugs as soon as the Food and Drug Administration (search) approves them, but that is not the most cost-effective way to operate. Unfortunately, they say, nobody is pushing for a cost-benefit analyses.

"The FDA never compares one drug against another drug in the same class and therefore have the opportunity to look at the relative cost-effectiveness. The drug companies don’t want that information. It's almost collusion around not making this kind of comparison. We can't make these decisions about how to spend public dollars without knowing things like that," Halpin said.

Reischauer proposed the development of a new, multi-billion dollar "quasi-government entity that had this responsibility, and one which didn’t only test the pharmaceuticals, but also tested devices and procedures."

Not all experts agree that this model of research would be appropriate. While more information would be valuable, Antos worried that setting up an agency or having the FDA conduct further trials before approving Medicare to pay for the drugs might be a mistake.

"The verifiable science may not catch up with the innovation or experimentation that takes place in the real world. I'm a little worried about cutting off patients from potentially lifesaving treatments because we didn’t happen to fund that study this year," Antos said. "Saying if we don’t go through that process, we're not going to cover it, that may be considered cruel and unusual punishment."