TCS Daily

Un-Free Enterprise

By Morton Kondracke - November 13, 2003 12:00 AM

Editor's note: This is the second of a two-part series on science, technology, politics and health care.


Among the things that the Republican Party has stood for throughout the years have been free enterprise and the profit motive. So, how is it possible that under a Republican president with a Republican Senate and a Republican House, a direct assault upon free enterprise and the profit system may succeed?


President Bush and the Republican Congress have already engaged in an assault on basic medical research -- reducing funding, outside of bioterrorism, for the National Institutes of Health and totally rejecting funding on transformational research in stem cells and cloning.


More inexplicable, though, is how so many members of the GOP could surrender core free market principles with their support of drug reimportation legislation.


For some years, Democrats have been waging a political jihad against the pharmaceutical industry, treating it as if its products were as lethal as tobacco or guns. They've accused the drug companies of charging high prices, alleged "excessive" profits, for gaming the patent system to keep generic drugs off the market and for spending too much of their revenues on advertising and promotion.


The industry fought back against this political assault on its profits and survival by spending $105 million in campaign contributions since 1990, of which 67 percent went to Republicans. In the 2002 election cycle, the industry contributed $29.3 million to federal candidates, 74 percent to Republicans.


Some thanks it's getting now, though. In the wee hours of July 25, the House of Representatives voted 243-186, to permit mass re-importation of drugs from Canada and two dozen other countries without giving the Food and Drug Administration authority to decide whether the import system is safe. The majority included 83 Republicans, among whom was one of the chief sponsors of the legislation itself, Rep. Gil Gutknecht, R-Minn.


The Bush administration stoutly fought the bill on safety grounds, but administration officials say that the president will sign a Medicare prescription drug bill that allows re-importation from Canada.


Why have Republicans turned their back on both core values and valued supporters? Mostly because it's politically popular, based on a misdirected sense of outrage.


Pressure for reimportation is driven by widespread indignation -- mainly from seniors and lobbies representing them -- over the fact that drugs in Canada and Europe commonly sell for a fraction of the cost in the United States. For example, monthly doses of the breast cancer drug Tamoxifen cost $360 in the United States and $60 in Germany; a prescription for the blood pressure medicine Toprol-XL costs $108 here and $40 in Canada.


The suspicion among patients, egged on by politicians, is that the drug companies are ripping them off. But there are reasons for the disparities beyond anything the drug companies can control.


One big one is that Canada, Germany and other countries control the prices drug companies may charge, using the power of a clause in the Uruguay Round world trade agreement that would allow them to violate the patent of any drug whose manufacturer refused to sell it to them. So, the drug companies are forced to cut their prices dramatically to just above the cost of manufacturing the drug in most cases or see the market flooded with cheap imitations.


The manufacturing price, though, doesn't pick up the cost of developing a drug, which is substantial. It costs more than $800 million to develop a new drug and bring it to market, according to FDA Commissioner Mark McClellan; foreign countries are paying only the cost of manufacture and distribution. That leaves the R&D costs to be paid by Americans.


Patients and politicians here are outraged. But their rage should be directed at the free riders in foreign lands, not the drug companies. Reimportation of drugs from those countries amounts to reimportation of other countries' price controls -- and that threatens the very profits drug companies must make if they are to raise the investment dollars to research and develop new drugs.


What's more, just this week the Wall Street Journal, in a troubling front-page story, reported how the Canadian health systems focus on controlling costs is resulting in long waits for medical care. Just as we're learn more about some of the potential shortcomings of our neighbor's health system, why would Congress be quick to approve a de facto adoption of a key component of the Canadian system?


Politicians who vote for reimportation may please their constituents at the expense, initially, of the drug companies -- but, eventually, their action will cost of the lives of people who will die from diseases that won't be treated from medicines that won't exist.

In Congress, some conservatives -- one of them is Rep. Paul Ryan (R-Wis.), appearing on FoxNews last week -- rationalize their support of reimportation by saying it's a "free market, free trade issue." Ryan contends that no barriers should exist between consumers and products and that, in the case of drugs, an absence of "restrictions" on trade will lead to an equalization of world prices. Of course, this ignores the safety question entirely. And, the logic of his economic argument is that Americans should be free to buy products made by slave or prison labor. Price controls are economic cousins to that, certainly in conservative ideology.


The drug industry, for all the money it spends on advertising and campaign contributions, has been unable to convince the public of the value of its work and the costs involved in developing and testing drugs. Stomach ulcers that used to be treatable only with major surgery now can be halted with pills. The reduction in the death rate from cardio-vascular disease in the U.S. has been valued at $1.5 trillion annually, according to McClellan.


People don't understand that for companies, of every 5,000 compounds screened for development, only 250 proceed to pre-clinical testing, only five make it to clinical trials and only one results in an application to the FDA. Only half of those, moreover, get to the most expensive Phase 3 clinical testing and fewer make it to market.


Those realities are difficult to describe, while the price differentials are so easy to see. So, it's made it an easy tradeoff that more and more politicians are making -- including a number of budget-strapped state governors who want to reimport drugs to save money on Medicaid.


It remains to be seen exactly how much reimportation will curb revenues and profits. Drug companies may refuse to sell Canada more product than its domestic market can absorb, in which case either prices will rise in Canada or Canada will refuse to ship drugs to the United States.


But the fact is that some reductions will occur and that will result in fewer drugs.


And coupled to the administration's assault on basic research that works in tandem with private, profit-motivated drug company efforts, this abandonment by many in the GOP of their free market principles and support of private enterprise will leave the party with a sorry legacy and the public with fewer medical miracles.


Morton Kondracke is executive editor of Roll Call, a Fox News analyst and contributor to


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