While pharmaceutical manufacturers have spent millions on campaigns warning that cost controls like those in President Clinton's healthcare reform plan would squash the research and development of new drugs, a government report suggests the industry has been crying wolf.
According to a report by the Congressional Budget Office, the curbs on pharmaceutical prices in the Clinton plan would be greatly offset by provisions that would extend prescription drug benefits to all Americans. The bottom line is that overall profits would rise about 3%.
"The level of industry R&D might not change appreciably, given the small changes in total returns from drug development," the CBO said.
Among the most contentious drug-related provisions in the Clinton plan is a minimum 17% rebate that drugmakers would be required to give the Medicare program on all brand-name prescription drugs.
In addition, the secretary of HHS could negotiate a special Medicare rebate for new drugs, if the products were deemed excessively priced or were sold abroad at a lower price.
A second initiative would give a 13-member federal advisory council the authority to review prices on breakthrough drugs to determine whether or not they were reasonable.
Together, these curbs could "give the federal government a major influence over the prices of many pharmaceuticals," the CBO said.
The negative effects of such price curbs, however, would be countered by the extension of prescription drug benefits to the entire population, which would increase demand for drugs by 4% to 6%, boosting profits for manufacturers. When cost constraints were factored in, drug companies would be left with increased profits of about 3%, the CBO predicted.
Profits on drugs for those over 65 would drop about 14%, while rising 11% for drugs sold to people under 65. Manufacturers could shift research efforts to products that primarily would benefit younger consumers, the CBO said.
The Pharmaceutical Research and Manufacturers of America said the report showed that extending drug coverage under healthcare reform "would not result in a windfall for the pharmaceutical industry.
"At a time when the U.S. population is aging, and when the chronic diseases of aging, such as Alzheimer's, are straining our healthcare budget, measures that discourage research on medicines for the elderly are cause for serious concern," the organization said.