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Jewish World Review Oct. 21, 2002 / 15 Mar-Cheshvan, 5763

Doug Bandow

Doug Bandow
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Consumer Reports

Interest group battles | Public-spirited rhetoric usually masks intense interest-group combat on Capitol Hill. One example of that is going on now over pharmaceutical patents.

In this battle, health insurers, which barely survived the Clinton administration's assault, are targeting research drug firms.

The issue is complex. What is the right balance, for instance, between generating new products and cutting the price of old ones? What should be done with 30-month stays in patent infringement actions?

Current law reflects a political compromise running back to 1984. In July, however, the Senate passed the McCain-Schumer Bill, weakening patent protection. The House has refused to go along. One group is attempting to force the bill out of committee through a discharge petition, which requires signatures from a majority of members.

The issue will carry over into any lame-duck session, but some business supporters are now backing away.

One supporter, the so-called Business for Affordable Medicine, never lived up to its name. It has as many gubernatorial and labor-union members as business members. Moreover, the group has been losing support. Georgia-Pacific recently abandoned its leadership role in the organization.

Also active is the Coalition for a Competitive Pharmaceutical Market. Yet the coalition opposes the discharge petition out of fear that it will prevent a bipartisan coalition.

Like the Business for Affordable Medicine, the coalition includes a number of employers. It also involves generic-drug producers and, more importantly, insurers. For instance, Aetna, several Blue Cross/Blue Shield entities and some health insurance associations sit on the organization's board. Representing the links among them is Leonard Schaeffer, who heads Wellpoint Health Networks, a national HMO that began as Blue Cross of California, and has played a leading role in several industry groups.

Generic drugs lower the cost of existing medicines, but generics firms do very little research. Thus, speeding generics to market will reduce prices only by simultaneously cutting the return on R&D for new products.

Another aspect of the insurers' campaign against the research industry is their effort to move drugs to over-the-counter status. Doing so increases patients' freedom to choose their own medicine, but that's not why companies like Aetna and Wellpoint prefer that products like Allegra and Claritin be sold over-the-counter.

Shifting to over-the-counter means that insurers no longer have to pay for prescriptions. Although the cost of over-the-counter drugs tends to fall, the remaining expense is no longer covered by insurance. Wellpoint's savings on Allegra and Claritin run around $90 million annually.

Wellpoint and Aetna now want to push entire classes of drugs, such as non-sedating antihistamines, to over-the-counter status. This strategy is particularly attractive as health-care cost rises. The Center for Studying Health System Change figures that 2 percent to 3 percent of the expected 15 percent rise in medical spending in 2002 will be pushed from employers to employees.

There's nothing nefarious about adjusting benefits in light of changing economic circumstances, when negotiated with patients. However, moving pharmaceuticals over-the-counter and dropping them from the official formulary allows insurers and employers to cut benefits sub rosa.

Ironically, scrimping on new pharmaceuticals may not be a good way to save money. For some people, brand-name products are more effective and ultimately minimize other health-care costs. Moreover, a recent analysis in Health Affairs magazine reported that "Hospital spending was the key driver of overall cost growth" in health care in 2001. In contrast, "prescription drug-spending growth declined for the second straight year and was overtaken by spending on outpatient hospital services."

Insurers might be best advised to try to shrink hospital outlays. In any case, the real problem is insurers' lack of accountability to patients, resulting from federal medical and tax policies that encourage third-party payments.

If employees, not employers, purchased their health insurance, they could choose among a range of drug-coverage options. Unfortunately, most insurers are beholden to employers, who naturally prefer to spend less. Thus, the insurance industry's emphasis is on lowering short-term costs even to the long-term disadvantage of patients.

Moreover, some of the generic-interest activists have broader, more dubious agendas. The Coalition for a Competitive Pharmaceutical Market board members include aggressively left- wing groups like the Gray Panthers and the National Committee to Preserve Social Security and Medicare. Of equal concern, lobbyist Chris Jennings, who handles some Business for Affordable Medicine and coalition members, like General Motors, worked for Ira Magaziner, the architect of Bill Clinton's ill-fated federal takeover plan.

America's health-care system needs reform. But if Congress only focuses on cutting costs, it will inevitably degrade patient care.

Balance is especially important in designing patent law. Change it if doing so strikes a better balance between expensive innovation and cheap status quo. But don't change patent laws to the advantage of insurers and employers and to the detriment of patients. Certainly don't do so to secure a few cheap votes in the coming election.

JWR contributor Doug Bandow is a senior fellow at the Cato Institute. Comment by clicking here.


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08/13/02: Declare war before going to war
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07/30/02: Protecting or persecuting citizens?
07/23/02: Shifting the risk to Uncle Sam
07/16/02: Fighting the patent wars
07/09/02: Getting that quota feeling
07/02/02: Teetering on the Democratic edge
06/25/02: Judicial litmus tests
06/18/02: Killer teeth?
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05/24/02: Threatening pharmaceutical innovation
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04/23/02: The war on charity
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03/20/02: How to defeat Cuban communism
03/12/02: Junk science, redux
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02/27/02: Washington-style campaign reform: incumbent protection
02/20/02: The grand Enron morality play
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02/05/02: Succumbing to the terrorist temptation
01/29/02: Democrats for what?
01/22/02: The Iraqi question
01/14/02: Profiling frequent flyers
01/08/02: Trade, not aid
01/02/02: Treason by any other name
12/26/01: Preserving freedom in an unfree world
12/17/01: Dealing with terrorism's aftermath
12/10/01: Emerging friendships?
12/04/01: Uncle Sam: Insurer of last resort
11/28/01: Expanding the circle of trade
11/20/01: Free to be stupid
11/13/01: The meaning of compassion
11/07/01: Patriotic scoundrels
10/30/01: The coming postal raid
10/16/01: First, do no harm
10/12/01: Good news from a suffering land
10/04/01: Defending whom?
09/25/01: The wrong solution to the wrong problem
09/21/01: The price of terrorism
08/28/01: Uncle Sam's retirement scam
08/21/01: Canberra's quaint naivete
08/14/01: Uncle Sam's false fuel economy
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07/24/01: Kill the campaign reform illusion
07/17/01: Do as I say, not as I do
07/11/01: Lawyers at play
07/05/01: Western blundering, Macedonian disaster
06/26/01: How best to honor Bill Clinton?
06/19/01: A maturing Europe?
06/15/01: Tell Beijing to mind its own business
06/06/01: Ukraine's boiling cauldron
05/31/01: Protecting privacy from Uncle Sam
05/22/01: America's Balkan quagmire
05/09/01: The Taiwanese flash point
05/01/01: Globalization serves the world's poor
04/24/01: Who's cheating whom?
04/10/01: The NCAA scam
04/03/01: Balkan stupidities
03/27/01: McCain doesn't want a 'risk for our country'
03/20/01: Dubious Korean alliances
03/06/01: Coercive patriotism
02/27/01: Bombing without end
02/20/01: A dose of misplaced outrage
02/13/01: Psst: Tax cuts for taxpayers. Pass-it-on
02/06/01: Bridging the unbridgeable gap
01/23/01: Left-wing demagoguery
01/16/01: The drug war problem
01/10/01: Politics and trade
01/03/01: Hope for liberty?
12/27/00: The debris of war
12/19/00: What's the rule of law for?
12/15/00: Ending silicone breast implant saga
12/05/00: Election may yield victor, but there are no winners
11/21/00: A Bush presidential mandate?
11/07/00: Exprienced Gore? Yeah, right
11/01/00: Interventionist follies
10/17/00: America's brightening prospects in Ukraine
10/11/00: GOP budget scandals
10/03/00: How a pharmaceutical 'crisis' was created
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09/13/00: AlGore's risky budget policies
09/05/00: Military readiness and Korean commitments
08/29/00: Let sleeping hypocrites lie
08/21/00: Targeting a journalistic pariah
08/15/00: European garrison for Kosovo?
08/08/00: Journalistic cleansing at the Boston Globe
08/04/00: Junk science on trial
06/22/00: Eternal vigilance is the price of liberty
06/15/00: The end of U.N. peacekeeping
06/07/00: The Clinton regulatory miasma
06/01/00: Administration stupidity, congressional cowardice
05/25/00: The silence of the international community
05/18/00: Protecting the next generation

05/11/00: Freer trade with China will advance human rights

05/04/00: How not to save the Constitution

04/28/00: American tripwire in Korea long ago disappeared: Why are we still involved?

04/18/00: Clinton administration believes the IRS is too gentle, wants more auditors

© 2002, Copley News Service