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A suggestion | |||||||
| In an odd way, you have to admire the dilemma in which pharmaceutical manufacturers find themselves. On the one hand, these companies have invested billions of dollars in the development of drugs that cure or prevent disease. Economics—indeed, fairness—dictates that they receive an adequate return for their investment. On the other hand, even in the face of bioterrorist threats and the recent anthrax deaths, pharmaceutical companies assert that they have the right to prevent anyone, in either the public or private sector, from purchasing generic versions of lifesaving drugs. As long as those drugs are under patent, they say, they should be able to charge a price for them that depends only on corporate return and not on the public need.
So how should a company set drug prices so that public and corporate needs both are met? Here’s one suggestion. Consider the response of chemical companies when, in 1987, the U.S. Congress passed the Emergency Planning and Community Right-to-Know Act. One of the central points of this legislation is the Toxic Release Inventory Report (TRI) that companies must submit annually to the U.S. Environmental Protection Agency on the amount of hazardous chemicals released during the year. There are no taxes on these chemicals, no penalties for having them on site, and no real government regulatory downside except for having to come forward and state corporately, “Here’s who we are, and here’s the amount of these chemicals we have discharged into the air and water in the previous year, or that we have on-site.” Yet if you look at the most recent TRI report (http://www.epa.gov/tri), the quantities of reportable chemicals have dropped from an initial level of 3100 million pounds in 1988 to about 1700 million pounds in 1999, the last reported year. The curve simply goes down. Why? No doubt because corporations are required to provide information publicly, and have responded by reducing the levels of these chemicals over time to improve their reputations. The same principle could apply to drug pricing. The public is not fully informed about the way pharmaceutical manufacturers decide how much to charge for their products. The process is considered corporate property. The range of prices over which a company sells a drug is a jealously guarded secret. Only when Bayer was shown to have sold Cipro for 45 cents a tablet did the cost of 95 cents each (agreed to only after they were threatened with loss of patent rights) seem unreasonable to some. Yet Bayer was able to explain that the 45-cent amount was government mandated and did not reflect their research and manufacturing costs. My bet is that people respond more to the relative fairness of a pricing scheme than they do to the absolute dollar value. Witness the outcry over lower Canadian drug prices relative to those in the United States. So here’s my small suggestion: Pharmaceutical manufacturers could—through their own trade association, or, if need be, through the Food and Drug Administration—inform the public of the quantities and prices of each drug they manufactured the previous year. Consumers could judge for themselves the relative fairness of drug prices, and just as with the TRI report, the curve would probably go down. After all, this suggestion simply advocates public disclosure of sales information, not price regulation. Direct, dictatorial regulations don’t seem to work as well as free-market forces, as long as everyone has the information needed for informed decision-making. Reports on drug pricing analogous to those used for toxic chemical reporting would simply be a resource. — |
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