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marjorie powell
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Marjorie Powell is the senior assistant general counsel for the Pharmaceutical Research and Manufacturers of America (PhRMA), a trade association representing pharmaceutical and biotech companies. She believes that the solution to the prescription drug crisis is a Medicare drug benefit. She argues against government-imposed price controls because, contending that the majority of new drugs are developed in the U.S. due to its free market system, which serves as the driving force behind research and development. This interview was conducted on Feb. 14, 2003.

In the past years, most action with drug legislation has been at the federal level, but it seems to have switched to the states. Has the landscape changed about where legislation is happening?

Well, the states have been facing budget problems for the last couple of years for a variety of reasons. So they've been looking at ways to cut all of their expenses. That includes one of the major portions of any state's budget, which is their health program for the poor and low-income, disabled people in the states. So they've been looking at revising the Medicaid program. That's resulted in a lot of new legislation that deals with prescription drugs for the Medicaid program at the state level.

So the states' financial situation makes them more desperate for solutions?

Actually, a couple of things have happened at the state level. Back in the late 1990s, when they had lots of income, they expanded the populations eligible for their Medicaid program. That increased the total enrollment and therefore the cost of the program.

We don't think the government should be setting prices and telling companies what they can charge, but we think that seniors do need a Medicare drug benefit.

The other thing that's happened at the state level is that prescription drugs have become a bigger part of the health care system. Because there are more drugs for chronic conditions, people are taking more drugs. That means that the budget for the pharmacy portion of the Medicaid program has gone up. The budget for the hospital portion has gone down somewhat, but in many cases, the increase in the numbers of people getting prescriptions hasn't resulted in the direct decrease in the hospital budget. So states are spending more on their pharmacy, and they're not seeing that exact saving, and that's causing budget problems in the states.

Maine Rx would allow Maine to bargain for prices.

Maine passed a law in 2000 that people talk about as negotiation. But, in fact, the law requires that all manufacturers provide a rebate, in an amount to be determined by the commissioner. ... Although they call it negotiation, it's not truly a negotiation, because if a manufacturer doesn't provide that fixed rebate amount, then the manufacturer's drugs will not be available to people in the Medicaid program in the state. What the commissioner is required to do is to make all the doctors call in and ask for permission before they write a prescription for any drug for Medicaid people. So the state is actually holding Medicaid patients as pawns, to force rebates for people who are not eligible for Medicaid.

The industry will do similar negotiations with insurance companies or PPMs. Why not negotiate with a state government?

Individual companies negotiate with their purchasers, their customers, all the time. In fact, the state had negotiated on a case-by-case basis for the senior pharmacy assistance program that the state was running, and as nearly as I know, at least the innovator manufacturers had agreed to provide the Medicaid rebate to that program run by the state. What this said was that if you don't give us the price that we demand, then we're using not our negotiating power, but our regulatory power of the state legislature to limit access of Medicaid patients to your drugs.

We think that's bad medicine for Medicaid patients. We also think it's not negotiation; that's government regulation, government establishment of the price for a particular product. ...

But the law was passed. Why did you decide to sue? Why not let it stand?

We decided that we had to challenge this law for a couple of reasons. The first was, we think that it harms Medicaid patients, because it says, "Medicaid patient, you cannot have the drug your doctor thinks you need, unless the doctor can convince somebody in the state of the need for that drug; unless the manufacturer is willing to give a rebate to all of the people who are not eligible for Medicaid." We think that violates the federal Medicaid law and that it harms Medicaid patients. So we just felt we had to challenge the law.

There's no evidence that prior authorization harms Medicaid patients.

Actually, there is a lot of evidence that prior authorization harms Medicaid patients. Florida has a program that is somewhat different from the Maine program. Florida's own study of what happened in that program in the first several months of implementation is that something like a third of the Medicaid patients arrived at the pharmacy and could not get the drug that they were prescribed, and half of those patients never got any drug for that condition. In at least one instance, one of the people had a transplant and couldn't get the medication that they needed for an antibiotic, and they ended up hospitalized in the emergency ward, and then the intensive care ward, for a week. That clearly is harm to Medicaid patients.

There are other studies in other states of prior authorization and limits on access to prescription drugs for Medicaid patients. They all conclude that when you deny doctors the right to prescribe the medication they think their patients need, particularly if the patient has been stabilized on that medication over a period of time, that you harm the health of the Medicaid patients. These are the sickest, poorest people -- typically people with two, three, four medical conditions.

Other than harm to Medicaid patients, is another fear having price controls set on prescription drugs?

The industry oppose[s] price controls. We think that prices should be set through the market, through negotiations. That's the way the private sector negotiates. We also recognize that particularly seniors, who do not have drug coverage through private insurance, don't have anybody negotiating for them. We think that's a problem, and that the solution to that is a Medicare drug benefit at the national level. Seniors, just as they have somebody who negotiates the price of their hospital visits or doctor's visits, would have somebody negotiating for prescription drug coverage for them. We don't think the government should be setting prices and telling companies what they can charge, but we think that seniors do need a Medicare drug benefit. ...

There's more spending on advertising than R&D in these companies. Doesn't that hurt this innovation argument?

The pharmaceutical industry, the innovator companies, spent $32 billion last year on research and development. They spent a total of $15 billion on their total advertising and marketing. Of that $15 million, $8 million covered the cost of free samples that companies give to physicians, so that physicians can give their patients a sample to find out whether this medication is going to work, whether the patient will have side effects that make it impossible to continue on the medication. In many cases, physicians give those free samples to people who they think can't afford their medications.

Another major portion of the marketing budget of pharmaceutical companies is sending salespeople out to talk with doctors, nurses, health care providers, to explain the benefits of new medications and also to explain the potential side effects, and when a new medication is contraindicated, when I shouldn't be taking it. As medicines become more and more complicated, it becomes more and more important that everybody in the health care system know[s] how and when to use a particular drug.

A very small portion of the marketing budget actually goes to what people see, the direct-to-consumer advertising, and there are a relatively small number of products that are actually the subject of direct-to-consumer advertising. ... But we do think that direct-to-consumer advertising is very important, because people are being asked to take on more and more responsibility for their own health care, and the only way they can do that is if they know something about their disease or condition.

The Nexium and Advair commercials don't even mention what ailment the drug is for.

There're actually two kinds of commercials that FDA allows in the broadcast market. One of them talks about both the disease and the medication, and that commercial has to include not only a statement of the use of the medication for the disease, but a clear statement of the various risks associated with the product.

The other kind of advertising that FDA allows is what they call "reminder" advertising, which is actually aimed at people who are already taking the medication. It's intended to help remind them that they should be taking their medication consistently. You see that kind of ad for medications that people have to take on a continuing basis. Some of the surveys of consumers do find that people who are supposed to be taking a medication routinely say that watching those ads reminds them and prompts them to continue taking their medication. And patient compliance, particularly with medications for chronic conditions, is a real issue that doctors and the entire health care system have to deal with.

So doctors get most of their information from drug reps. They make decisions based on what drug reps tell them and what free samples they have. Don't you see a problem?

Actually, I think I may have a higher view of the professionalism of members of the profession. I think doctors get information from the company representatives because the company representatives have the most information about that medication. If I've been studying a medication for 10-15 years before it comes on the market, and I'm getting reports and continuing to study it once it's on the market, I probably have more information about that medication, its interactions with other medications, than anybody else. So I am the person who should be providing the information.

But doctors also get information about, not only medications, but all kinds of treatments, through continuing medical education. All states require that physicians go back for continuing medical education.

In Oregon, they're trying to collect information about classes of drugs and make that available to doctors. Most people agree that this idea makes sense.

Actually, Oregon has a very interesting program. There are a number of states that have been doing the kind of thing Oregon is doing: Asking a group of physicians, or physicians and pharmacists, to get together and identify the medications that would be most effective. At the national level, when either the federal government agencies do this or a professional organization, they talk about standards of care. They would identify what probably should be the first-line medication for a condition, and what medications would be appropriate if that doesn't work. They look at potential interactions so they can say, "If you have a patient who has these two conditions at the same time, then here is the first recommended approach." They can identify situations where a particular medication, although it normally is the best one, should not be used because of some countervailing issues.

But what's happening in Oregon is they're not only doing that; they're then going one step further and they're saying that in their Medicaid program -- and eventually they'd like to move this to all health care in the state -- a physician can only prescribe that one drug that this group has identified as most effective, without getting permission from the state. Again, we think that interferes with the physician's practice of medicine. The physician has the patient's medical history. The physician knows what the patient has tried in the past, what has and hasn't worked. The physician knows what other medications the patient is taking, and is, we think, in the best position to make that decision.

Oregon agrees. The drug list is non-binding. They can say "dispense as written" on the prescription, and they can dispense whatever they want. It's very flexible.

Actually, the way the Oregon program is being implemented, that's not how it's working. The legislature, when it passed the law, included the provision that the doctor could simply write "dispense as written," but the Medicaid program has been saying, "No, you have to in fact call in and get permission for the drug to be dispensed if you don't pick the one that is on our list."

The problem with saying, "Here is one approach" is like the problem of saying "One size fits all," and only more so, because with medications, each of us is different and the medication interacts with our body differently. ...

Don't you think looking for the most cost-effective drug is a good way to go for state governments?

Well, that assumes that there is one drug that's going to work for everybody. If there were one drug that worked for everybody, we'd only have one headache remedy. But anybody who's had a headache knows that something that works for you may not touch my headache. I know that when I get a migraine, there are some things that work and other things that don't. If I just have a stress headache, aspirin or any of a number of other things will work, but they don't help with a migraine.

What is PhRMA's option? We have a major access problem in this country.

Actually, we do have an access problem for a couple of categories of people in this country. The pharmaceutical industry, the innovator companies, think that's a real problem. We have several solutions.

The first one is that we think there should be a Medicare drug benefit. In this day and age, when drugs are such an important part of the health care system, to have the federal program for seniors not cover drugs just makes no sense. So we're urging members of Congress to enact a Medicare drug benefit. We'd like to see that administered through the private sector, because we don't think the government should be making decisions about which medicines patients can have. Access, if it's limited by a federal list of approved drugs that can be prescribed for that class of people, is not truly access. Access means that I can have any of the FDA-approved drugs.

If Congress were to pass a Medicare drug benefit, that would relieve some of the state budget, because many people on Medicaid who are getting Medicaid-funded drugs are seniors. Their drugs would then be covered by the federal government under Medicare, freeing state money to cover more low-income or disabled people within their Medicaid program.

In addition, all of the PhRMA member companies have patient assistance programs that provide free medication to people who cannot afford their medications. As an interim, until Congress passes a Medicare drug benefit, many of the companies have established drug discount cards for seniors and the disabled, to get medications at a discount to give them the benefit of the negotiations.

Most people see private sector assistance for Medicare as unworkable.

Actually, most people see the federal employee health benefits program as a very workable program. Here in the Greater D.C. area, federal employees have a choice of, I don't know, 15 different private sector health care programs that are funded by the federal government. That's a perfect model and it works. Federal employees throughout the entire country have choices about their private sector-operated health care programs, paid for by the federal government. If that works for members of Congress, if it works for federal employees all around the country, why can that not work for seniors? ...

Senior citizens are a more expensive group than government employees. Why would insurance companies want to take them on?

Senior citizens do have different health care needs than those of us who are working. Because they are older, they tend to have more medical conditions and they need more drugs. But many of them are 66 and healthy and active. Anyone who is enrolling a range of seniors in a program is going to have the more and the less expensive. The program needs to be structured such that the person paying for the drugs also gets the benefit of any other hospitalization savings because the patient is taking the drugs. You can't separate those two. ...

Do you think something will be passed this year by the federal government? What's your prediction?

Well, I'm an optimist. I always have been. Every year I think, "This year Congress is going to pass a Medicare drug benefit." I actually think in the last election that there were enough indications that seniors really do expect Congress to act, that we will see something.

Maine Rx made it to the Supreme Court. What happens if the Supreme Court upholds that law?

If the Supreme Court upholds Maine Rx, depending on how they write their opinion, I assume that the state of Maine will start putting it into effect. Then individual companies will have to decide whether they're going to give Maine the price it's demanding, and they have to make that decision as a business decision, recognizing that that will establish a new Medicaid best price for everybody in the country. If they don't participate, then seniors in Maine and people on Medicaid in Maine will not have access to their medications.

[Editor's Note: The Supreme Court lifted the injunction against Maine Rx in May 2003.]

Do you think other states will follow suit?

There're a number of states that introduced bills modeled on Maine Rx, and there're a couple of states that have passed them, but then put them on hold until they see what the Supreme Court does. I think depending on what happens, we would have the potential for a number of states essentially gutting their Medicaid program for their sickest, poorest people in the state, and then having eventually to deal with the budget crisis when all those people end up in emergency rooms in hospitals.

It seems like one worry is that the industry will be facing a patchwork of schemes to deal with.

There actually could potentially be a patchwork for schemes -- not only for the industry, but for physicians providing services to Medicaid patients and for Medicaid patients. That may not be a problem in a very large state. But if you take for example the District of Columbia, where a physician may be serving Medicaid patients from Virginia, Maryland, and the District of Columbia, if they have different rules for each of those jurisdictions about what drugs they can prescribe, which ones they have to go through what kind of steps, and how many days it takes before they get an answer for a patient, it's going to just add to the physician's workload and make it much more difficult for Medicaid patients to work their way through the system. ...

The other effect of the kind of patchwork from the Maine Rx and other programs that limit Medicaid is that it puts us back where we were before 1990 -- with each state trying to negotiate with drug manufacturers about what kind of discount the state would get for its Medicaid people. When Congress passed the mandatory Medicaid drug rebate back in 1990, part of what they said was, "We don't want the states to have to negotiate on a state-by-state basis. We'd like to do a single negotiation and say, 'Manufacturers, you will give every state the benefit of the best private sector negotiator. You will give back to Medicaid your best discount to any private sector purchaser.'" That took the states out of the need to negotiate, something that state administrators aren't particularly used to doing.

If Maine Rx wins in the Supreme Court and other states follow suit, will that harm innovation?

The research-based pharmaceutical companies are the source of research and development for new medications. They have two sources of funding for that research and development. They can get funds through the stock market, through the value of the investments in their company, and they get funds by selling their current drugs. So sales of current medications fund continuing research. When you cut the sales income, you cut the amount of money available for research.

It seems that there's a tradeoff between access and innovation in this country. Why not have a little less innovation -- maybe the next Alzheimer's drug takes an extra year to come out and a few more people get to take the drugs? Why not change the tradeoff between access and innovation?

There actually is no way to change the tradeoff between access and innovation on the government's part, except sort of an "all or nothing." When government imposes price controls on an industry, innovation dries up. If you think of regulated industries, there is not a lot of new research and development. The pharmaceutical industry in the United States, because it's not been operating under price controls, is the engine of new research and development.

Now, each individual company makes a decision about where and how to invest in research and development, but it takes on average $800 million and 12 to 15 years to bring a new medication from discovering the compound to getting FDA approval to market that product. A company may test 10,000 compounds before it identifies one that it wants to move forward with in clinical trials. Many of the drugs that start clinical trials in humans get canceled along the way. It's a very expensive process.

Each company then balances the sales of new drugs with investments in research and development. The government helps with that, both through a research and development tax credit that is available not only to the pharmaceutical industry, but to the biotech industry and to the computer industry and a lot of the other technologically advanced industries. The government also helps by saying, "We will provide a special benefit if you are researching a medication for a small population" -- what they call "orphan drugs," which is really a misnomer, because it's [for] small patient populations. The government will help with a tax credit and some special marketing benefits for drugs directed to those audiences. But if the government imposes a price controlled system, then that dries up the funding for research and development.

But these companies' bread and butter is innovation. I can't believe it's going to completely dry it up. Perhaps a little less, but it's not going to vanish.

If I have no money for research and development, then I can't invest in research and development. What's happened in other countries when the government has started imposing price controls, and the research and development funding has begun to dry up, is that companies canceled the riskier projects. The riskier projects are probably the breakthrough medications, but they're the ones that you don't know, and there's a very high risk that this is going to fail. So you get less and less of the risky, and more of the safer, surer research and development. It's the breakthroughs that at some point may help us solve the treatment for cancer or find a way to deal with Alzheimer's. There are lots of benefits to small improvements, but we also need the riskier, less predictable research and development.

But it's the most profitable industry in the country.

Actually, there are lots of statements about the industry being the most profitable, but--

Regardless, it's one of the very profitable.

But I've seen studies that show that investment banking is more profitable; that in fact, in any given year, Pepsi or Coke makes more money than the pharmaceutical industry. In any given company, the amount of profit in any given year fluctuates, because of a variety of things that may happen.

It's hard for people to swallow the argument that price controls are going to dry up innovation [in] a very profitable, very strong industry that spends a lot of money on marketing.

If you look at the amount of innovation that goes on in other countries, if you look at how many products that FDA approves are researched and developed by companies based in the United States, it's clear that the United States is the engine driving new research and development; that we are the country where the new medicines are coming from. And that's because we have a free market system.


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posted june 19, 2003

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