Reimportation Threat Raises Pricing Issue for Pharma Industry
Charting the future of public relations
Holmes Report

Reimportation Threat Raises Pricing Issue for Pharma Industry

Pharmaceutical pricing has become the biggest public relations issue facing the industry today, and the subject of a massive lobbying battle that pits pharmaceutical companies against the patients they serve and some of the most powerful interest groups in the country.

Paul Holmes

Earlier this year Michael Albano, the Mayor of Springfield, Mass., traveled to Canada, where he bought insulin and other diabetes supplies for his son. The drugs he brought back from north of the border were identical to the medication he bought in the U.S., but cost $1,000 less. In that one visit, he saved himself $250, and the city—which provides his healthcare insurance—about $850.

That got Albano thinking. If a majority of the city’s 9,000 employees and retirees started to get their medicines from Canada, he estimated that Springfield could save itself at least $4 million and perhaps as much as $9 million a year—perhaps cutting its $18 million prescription drug costs in half. So in July, the city became the first in America to sign up with Canadian pharmacy CanaRx, even offering to waive co-payments for employees and retirees who bought their medications through the company’s website. Since then, 1,600 have done so.

Albano is one of the leaders of a growing movement that terrifies the nation’s pharmaceutical companies. It is a movement that would legalize the reimportation of prescription drugs from countries that employ price controls to keep the cost to consumers down, giving millions of Americans access to medications they current cannot afford, but also depriving the industry of profits derived from the higher prices it now charges in the U.S.

Pharmaceutical pricing has become the biggest public relations issue facing the industry today, and the subject of a massive lobbying battle that pits pharmaceutical companies against the patients they serve and some of the most powerful interest groups in the country, including the AARP, which represents 35 million senior citizens.

America is virtually alone among developed countries in not providing its citizens with universal access to quality healthcare. Those countries with universal healthcare plans use their purchasing power as leverage to secure lower costs from pharmaceutical companies, while the U.S. allows an unfettered free market to set the prices. As a result, drug costs are 40 to 80 percent higher in the U.S. than they are in other countries, including neighboring Canada.

At the same time, there are 43.6 million Americans without health insurance, a number that has risen steadily over the past five years. And Medicare, the government insurance plan, now covers a smaller proportion of the health costs of beneficiaries than at any time since it was established in 1965. As a result, elderly Americans are paying 22 per cent of their income on health care, more than they spent before the program was established.

Not surprisingly, many of the uninsured or underinsured are seeking cheaper drugs from outside the U.S., and with the help of the Internet, finding them. Canadian pharmacists who sell through the mail or online say about one million U.S. residents are currently receiving prescription drugs they could not otherwise afford.

Not surprisingly, the industry is fighting back. It makes the case that it needs to charge higher prices for its products in America in order to fund innovation—the development of new, more advanced drugs and treatments for serious but rare conditions that would not otherwise be cost-effective. And it warns that drugs imported from overseas may not be safe, since they are not subject to scrutiny by the Food & Drug Administration.

The innovation message has been the focus of the industry’s communications efforts for more than a decade, since the Clinton healthcare reform plan.

“The industry has worked hard to communicate the importance and the benefits of a competitive marketplace and the unique position that America holds as the worldwide leader in new drug developments,” says Kathryn St. John, managing director of the healthcare practice at Burson-Marsteller in Washington, D.C. “A free market in the United States is crucial to continuing the industry’s high standards of safety and its history of innovation.

“I believe the American people and public officials accept, and fundamentally understand, the important role that the industry plays both in the United States and worldwide,” says St. John. “The collapse of the industry in European countries that have implemented price controls is well-documented.  Price controls are not a reasonable alternative.”

Paul McDade, global director of the health and pharmaceutical practice at Hill & Knowlton, makes the point—hammered home by the pharmaceutical industry for more than a decade—that drug costs account for only a fraction of medical expenses.

“The pharmaceutical industry will gain little ground by engaging in public debate about how the healthcare dollar is spent,” he says. “The industry must do a better job of communicating three key facts to consumers and other audiences: pharmaceuticals account for only 10 percent of healthcare spending and therefore are not the primary cause for the high cost of healthcare in this country; pharmaceuticals are cost-effective when compared to the costs of under-treated illness; and access programs exist to make high-priced products available to U.S. patients in need.”

But such arguments notwithstanding, there’ no doubt that the other side of the debate has all the momentum.

On Thursday of last week, Minnesota governor Tim Pawlenty said he wanted his state to be the first in the nation to make Canadian drug imports available to all its residents. Like many states, Minnesota is looking for creative ways to reduce healthcare costs, and Pawlenty, a Republican, says the state will set up a website to put its citizens in touch with Canadian pharmacies. “While we appreciate the breakthroughs and innovations in prescription medicines,” he says, “Americans shouldn’t be forced to pay substantially more for their medicine than the rest of the world.”

A few days earlier, Illinois governor Rod Blagojevich stepped up his call for the FDA to allow state and local governments to import drugs from Canada. Blagojevich launched an online petition drive for citizens to pressure the FDA to allow Canadian drug imports. Blagojevich also sent letters to the nation’s governors, asking them to join in pressing the FDA to allow the imports and called on Illinois’ attorney general to investigate possible antitrust violations by major pharmaceutical companies fighting to keep U.S. consumers from buying drugs from Canada.

“The FDA can ignore our letters, they can ignore our calls,” Blagojevich told a Chicago news conference. “But they can’t ignore the people forever.”

In Congress, meanwhile, broad bipartisan support led to passage of a House bill that would make it legal for U.S. residents and pharmacies to purchase prescription drugs from Canada and certain other nations. The bill could save consumers at least $635 billion each year, according its sponsors, who include Dan Burton, a Republican from Indiana, and Barney Frank, a Massachusetts Democrat.

“An unaffordable drug is neither safe nor effective,” the bill reads, adding that the government should “give all Americans immediate relief from the outrageously high cost of pharmaceuticals.”

The AARP supports reimportation legislation. Says chief executive Bill Novelli, “It is a national embarrassment that in a country with the most advanced medical system in the world, so many of our citizens, often on fixed incomes and with limited resources, can obtain affordable prescription drugs only by seeking them in foreign countries.

“Reimportation is not a panacea for the problem of soaring drug costs. But it does hold the potential to place some downward pressure on the double-digit increases in costs that Americans face each year…. We believe that safety concerns can be minimized by restricting the legal source of re-importation to Canada, from licensed Canadian pharmacies and wholesalers.”

Under current U.S. law, only drug manufacturers may import prescription drugs, but in 1988 the regulation was revised to allow travelers with life-threatening illnesses and under a doctor’s care to import a few months’ worth of medications. Today, individuals routinely bring in two or three months’ supply of many medications, and the FDA says it lacks the resources to clamp down on those who do.

The percentage of adults that has bought prescription drugs from a pharmacy in Canada or another country has risen from 5 percent last November to 7 percent today. The percentage that says it would like to shop abroad for prescription drugs if it was able to do so has increased from 40 percent to 48 percent. Not surprisingly, The more money people spend out of pocket on drugs, the more likely they are to shop abroad: 16 percent of those with out-of-pocket costs for drugs of over $1,000 a year have shopped abroad.

“This is a very ugly issue for the pharmaceutical industry,” said Humphrey Taylor, chairman of The Harris Poll.  “As importation of drugs grows—and it looks set to grow a lot more—drug companies run a big risk of making more enemies as they fight to prevent importation.  This would fuel the growing backlash against the industry.”

And 77 percent says it would be unreasonable for pharmaceutical companies to try to “make it impossible for Canadian pharmacies to sell drugs over the Internet.”

Says Taylor, “As this is what several pharmaceutical companies appear to be doing, it seems likely that this will further damage the already battered reputation of the pharmaceutical industry.”

The industry’s defenders, however, continue to believe that it can win the public debate.

“Drug prices and most other medical costs are lower in other countries due to price controls and related measures associated with socialized medicine,” says David Catlett, head of healthcare practice at Ketchum. “Unlike other countries, the free market system in the U.S. supports unfettered innovation and a standard of care unrivaled in the world.

“In fact, given the advantages of the U.S. healthcare system, many multinational pharmaceutical companies are concentrating their resources and R & D capabilities in the U.S.” Swiss pharmaceutical giant Novartis is building a new research facility in Cambridge, for example, and expanding its presence on this side of the Atlantic. “If U.S. consumers are subsidizing the rest of the world, they’re also benefiting from the pharmaceutical innovation that occurs mostly in the U.S.”

But to many consumers, it seems as though the cost is being borne disproportionately by patients in America, while the benefits accrue to everyone. The fact that R&D is conducted in the U.S. may create jobs for researchers, but it doesn’t provide a great deal of comfort to patients who cannot afford the cost of treatment. As long as the cost of innovation falls overwhelmingly on impoverished Americans, the pricing issue is not going away—although not everyone sees the issue in those terms.

Says St. John, “Just as Americans are willing to assume a global posture on issues of world peace that sometimes require us to pay a very high price—including the cost of life—under the right circumstances, and with honest and direct dialogue, most Americans will be willing to cover the costs of creating a superb healthcare system.”

But there’s a huge difference between asking a volunteer military to put itself in harm’s way to defend its country from terror, and asking the poorest and least fortunate Americans—none of whom volunteered to be sick—to sacrifice their access to life-saving medication in order to safeguard the R&D budgets of pharmaceutical companies.

Just ask 77-year-old Isaac Ben Ezra, who has become an activist for affordable drugs. “We are not going to roll over and die,” he told a recent gathering in Springfield. “The only reason I’m standing here today because I am the recipient of Canadian prescription drugs. When the drug industry talks about safety of Canadian drugs, they’re talking about the safety of their profits, not my safety.”

St. John acknowledges the anger of consumers. “The industry should not underestimate the current push-back it is feeling from politicians,” she says, “because it is a real and thriving anger that the politicians are feeling from their constituents.  Without some quick compromises and controls from the industry, patients’ frustrations are going to be turned into bad public policies by politicians who want to demonstrate they are responsive to their constituents.”

The industry must be more aggressive about offering “reasonable compromises” to control prices, says St. John. It also needs to find a way to correct the current imbalance in prices here in the United States and overseas.

“What people expect the industry and policy makers to do is to find a way to preserve new drug development while at the same time protecting and providing our oldest and sickest citizens with the best treatments. A strong and sincere effort is needed on behalf of the industry and public officials to control costs and begin to adjust the unbalanced worldwide pricing, while preserving innovation.”

But so far, the industry’s messaging has remained consistent, as it hammers away at innovation and safety concerns.

Several of the nation’s largest drugmakers recently persuaded the Pharmaceutical Research & Manufacturers of America (PhRMA) to fund a national advertising campaign—created by Weber Shandwick subsidiary Sawyer Miller—that once again emphasizes the strides pharmaceutical companies have made in treating fatal and debilitating disease.

The campaign features the Five Stairsteps’ 1970 song “O-o-h Child” and uplifting scenes of smiling people, young and old, while a narrator delivers promises for the future.

“It is important in the current debate, which is largely focused on the price of drugs, to ensure people are mindful of the importance and value of pharmaceutical innovation in their lives,” says Catherine Babington, vice president, investor relations and public affairs, at Abbott Laboratories. “Because of the medicines pharmaceutical scientists created, we treat high blood pressure and cholesterol effectively, and HIV/AIDS is a chronic disease in the Western world instead of a death sentence. And we are on the brink of the next wave of breakthroughs which will lead to better treatments and cures for diseases such as cancer, Alzheimer’s disease and obesity.”

But there is some recognition among industry advocates that messages about innovation won’t necessarily resonate with consumers who see the issue of one of fairness.

“Innovation for its own sake holds little appeal for consumers faced with rising health care costs,” says McDade. “The pharmaceutical industry must do a better job of translating scientific innovation, such as new biologics, into benefits for the individual patient, in terms of improved quality of life as well as long-term financial benefits.”

“In a post-Enron environment, the American people are looking for a sign that pharmaceutical profits, while good for competition and innovation, are not used for lavish personal gain and do not come at the cost of creating life-saving cures that are only available to the wealthy,” adds St. John. 

Meanwhile, the industry has also stepped up its efforts to bring the safety issue to the forefront. PhRMA, for example, has hired former New York cop Bo Dietl as a consultant. Dietl’s son was able to order Prozac online, and he has become a harsh critic of drug imports. “We don’t know yet if there are terrorist organizations behind” overseas pharmacies, says Dietl on his website. “We don’t know yet if the Russian or Italian mafia is raking in millions of dollars or whether or not anyone is setting up those websites only to steal the credit card numbers of unsuspecting victims.”

“We see everyday that reimportation is extremely dangerous and very real,” St. John says. “The FDA has said so, and thousands of patients who have suffered the dangerous and negative effects of counterfeit drugs have said so. It is a disservice to Americans citizens that this vital safety issue is being used as a political football.”

Says Catlett, “The FDA has sided with the pharmaceutical industry concerning safety issues of illegally imported drugs, and the recent spate of news about imported counterfeit drugs and badly preserved drugs is a legitimate concern.” He points to a recent report in the Washington Post that includes specific examples of people who have been harmed by the so-called “shadow market.”

But supporters of reimportation are for the most part calling for Congress to allow imports from Canada only. And FDA chief Mark McClellan acknowledges, “If you’re certain you’re buying approved Canadian drugs from an approved Canadian pharmacy, you can have a high level of confidence that that’s a good product.”

Under the circumstances, there seems little question that in an increasingly transparent marketplace, greater consistency of pharmaceutical prices around the world is inevitable. The answer, for pharmaceutical companies, surely lies in persuading overseas governments to pay closer to market prices for their products.

Says New York Times columnist William Safire, “By willingly cutting its prices to sell into price-controlled economies, not only has [the pharmaceutical industry] invited American buyers to go where the bargains are, but it has also invited U.S. politicians to call for foreign prices on products bought by U.S. state and local governments. And there go billions in private capital and earnings needed for costly research into new cures and treatments.”

He offers two possible solutions. Pharmaceutical companies could raise overseas sales prices to include the cost of research. “If the Canadian government says no, let Canadians who want our products buy direct from the U.S. via Internet or mail at the price that pays for research, as Americans do. If Canada forbids that, let its legislators answer to citizens who want prescriptions filled.”

Or the companies could restrict sales of pharmaceutical products to Canada based on estimates of local demand. “When American purchasers compete with Canadians for that limited supply, price controls will come under pressure. Canada can then impose rationing, always unpopular in peacetime; or tolerate black markets; or lift its controls until U.S. bargain-hunters see no purpose in competing with Canadian buyers.”

Several companies have already taken the second approach. Eli Lilly and Co. recently wrote to 24 Canadian drug wholesalers, telling them it will limit sales of its drugs to amounts the company estimates are sufficient to supply the Canadian market only. Previously, Pfizer and GlaxoSmithKline had taken similar steps.

Meanwhile, communication to U.S. consumers will be increasingly important as the debate over reimportation heats up.

“Pharmaceutical companies need to strengthen consumer education about disease impact and the benefits of new products,” says McDade. “Prelaunch programs should be used to prepare consumers for new drugs, so that their value is better understood when they reach market. Launch programs must anticipate pricing issues and convincingly demonstrate patient benefits, in terms of quality of life and financial considerations, provided by the product.”

More creative approaches will be necessary.

“The industry needs to face the harsh reality of the current public environment,” says St. John. “They must offer some compromises.  With meaningful and significant public policy actions, a solid public relations effort can build a strong reputation for a deserving and important industry.”

Allies must be brought into the fight.

Says McDade, “Pharmaceutical companies must forge relations with credible third parties, including physicians, patient advocacy groups and legislators, to demonstrate that the industry, like all Americans, is concerned with the spiraling costs of healthcare and the growing number of uninsured individuals and families.”

But ultimately, given the global nature of the market, the solution will have to be international coopration, rather than domestic legislation.

McClellan has called for other countries to cooperate with the U.S. in a compromise plan that would allow for global pharmaceutical innovation while placing less of the burden on the U.S. to pay for the costs of drug development. 

“I agree that global cooperation may be the best way out,” says Catlett.


View Style:

Load 3 More
comments powered by Disqus