Commentary

Interest Group Battles

This article was distributed nationally by Copley News Service on October 11, 2002.
Public-spirited rhetoric usually masks intense interest group combat on Capitol Hill, like that over pharmaceutical patents. Health insurers, which barely survived the Clinton administration’s assault, are targeting research drug firms.

The issue is complex: What is the right balance between generating new products and cutting the price of old ones? What to do 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, so generics’ interests are attempting to force their 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. For instance, the so-called Business for Affordable Medicine never lived up to its name, with a roster laden with a disproportionate number of nonbusiness members.

Moreover, BAM has been losing firms. For instance, Georgia-Pacific recently abandoned its leadership role in the organization.

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

Like BAM, CCPM includes a number of employers. But CCPM also involves generics 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. Even when a company like Wellpoint Health Networks, a national HMO network that began as Blue Cross of California, has stayed out of CCPM, its head, Leonard Schaeffer, has played a leadership role in three insurance groups belonging to CCPM.

Generics 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 OTC.

Shifting to OTC means that insurers no longer have to pay for prescriptions. Although the cost of OTC 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.

As these individual drugs have moved OTC, there is talk of pushing entire classes of drugs to OTC status. This strategy is particularly attractive as health-care costs rise. 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 OTC 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 low- through high-drug coverage options. Unfortunately, most insurers are beholden to employers, who naturally prefer to spend less - thus, the insurance industry’s emphasis on lowering short-term costs even to the long-term disadvantage of patients.

Moreover, some of the generic activists have broader, more dubious agendas. CCPM board members include aggressively left-wing groups, such as the Gray Panthers and the National Committee to Preserve Social Security and Medicare. Of equal concern, lobbyist Chris Jennings, who handles some BAM and CCPM members, such as 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 advantage insurers and employers to the detriment of patients. Certainly don’t do so to secure a few cheap votes in the upcoming election.

Doug Bandow is a senior fellow at the Cato Institute.