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Drugmakers Under Fire

Big drug companies are under siege in California and not just by the prospect of big jury verdicts involving blockbuster drugs like Vioxx. As prices continue to rise, pharmaceutical companies are defending themselves against charges of gouging and desperately trying to fight off voter-imposed price controls.


Earlier this month, state Attorney General Bill Lockyer filed charges against 39 drug companies, expanding on an earlier lawsuit alleging that the state’s Medi-Cal system for the poor was being overcharged. The suit is the latest move in a long push by Lockyer to force drug companies to rein in costs for their products.


Meanwhile, consumer and public health advocates are pushing Proposition 79 for this November’s special election. The measure would require drug companies to negotiate with the state to lower prices for the uninsured or be barred from lucrative Medi-Cal contracts. The pharmaceutical industry has countered with its own voluntary drug discount initiative, Proposition 78, and has raised a record $75.6 million to promote that measure and defeat Proposition 79.


All this comes against a backdrop of a Texas jury ordering pharmaceutical giant Merck & Co. Inc. to pay $253 million to the widow of a man who died after taking the painkiller Vioxx. After the verdict, several jurors said they concluded that Merck was more interested in making money than protecting the public.


“They knew and they still put Vioxx out,” juror Stacy Smith told reporters after the verdict was read, citing Merck documents that laid out the potential risks.


Merck, which had pulled Vioxx from the market a year ago, after a study showed that the drug doubled the risk of heart attacks and strokes after 18 months of use, said it would appeal the Texas verdict and defend itself in the estimated 5,000 other wrongful death and injury lawsuits stemming from the Vioxx case.


But there is rising public anger at the high cost of drugs now deemed essential for survival especially when the same drugs are selling for much lower prices in Canada and elsewhere.


“It’s basically a fairness issue. The public feels like it’s being gouged and its anger is being directed at drug companies,” said Bob Stern, president of L.A.-based Center for Governmental Studies.


A nationwide poll conducted by the University of Connecticut with grant money from drug maker Pfizer Inc. found that 77 percent of respondents believe prescription drugs were priced too high, 70 percent believe drug company profits are too high, and 55 percent favor some form of government-imposed price controls on prescription drugs.



More people affected


The amount that prices actually have risen is in dispute. One survey, from the Centers for Medicare and Medicaid Services, shows that price increases actually peaked at 15 percent in 2002, slowing to 10.7 percent in 2003, although it was still the fastest-growing major component of medical costs.


A survey of more recent data from insurance broker Aon Corp.’s consulting unit showed prescription drug prices increased at a 13.2 percent rate for the first six months of 2005 from the like period a year earlier. But that was down from a 17 percent increase for 2004 prices compared with 2003.


Industry representatives dispute these numbers, citing data from the Bureau of Labor Statistics that shows the Consumer Price Index for prescription drugs rose at a 3.4 percent rate from July 2004 to July 2005. But these figures include bulk mail order outlets and the negotiated discounts that insurers pay for drugs and are not reflective of the retail price.


Whatever the scope of the increases, they appear to be affecting greater numbers of people.


There has been an increase in the numbers of the uninsured being forced to pay full retail price for drugs in recent years, and drug co-pays for insured employees has risen too, according to Glenn Melnick, director of the Center for Health Policy and Management at the USC School of Policy, Planning and Development.


“It’s fed the popular perception that the rising price of drugs is a huge, huge problem. Suddenly, regulatory agencies and politicians have been forced to pay attention,” Melnick said.


About two years ago, the spotlight was on organized bus trips to Mexico and Canada to purchase prescription drugs; that, in turn, prompted a rash of local and state laws allowing for the “re-importation” of drugs from those countries. At least a dozen states have authorized Web sites for importing drugs from Canada.


But Gov. Arnold Schwarzenegger last year vetoed a package of bills that would have allowed the state to import drugs from Canada. Critics noted that the governor has received tens of thousands of dollars in donations from pharmaceutical companies.


Also in 2003, Lockyer seized on the hot issue of rising drug costs, combining forces with other state attorneys general to file anti-trust actions against drug companies for blocking generic drugs from entering the marketplace.


Lockyer continued in that vein with the filing of a lawsuit in 2003 against Abbott Laboratories Inc. and Wyeth Pharmaceuticals, alleging they systematically overcharged the state’s Medi-Cal program for prescription drugs in some cases, up to 10 times the price that the companies charged pharmacies and hospitals.


Lockyer’s action was prompted by a 1998 whistleblower lawsuit filed by a Florida pharmacist who had observed huge discrepancies among the prices that drug companies charged for their products.


Last week, an Abbott spokeswoman said that the company “has consistently complied with all regulations and we intend to vigorously defend ourselves against these claims.” Wyeth has also denied any wrongdoing.


Earlier this month, Lockyer expanded the lawsuit to include 37 more companies, including Thousand Oaks-based Amgen Inc. He cited additional evidence that had been gathered by state investigators.


“We’re dragging these drug companies into the court of law because they’re gouging the public on basic life necessities,” Lockyer said in a news conference announcing the expanded suit, which was filed in U.S. District Court in Boston.


Amgen spokeswoman Mary Klem said that while the company is named in the lawsuit, the charges are directed against the firm’s Immunex subsidiary, based on actions allegedly taken before Amgen acquired the Seattle-based maker of a popular arthritis medication.



‘We’re being price-gouged’


Lockyer’s suit isn’t likely to be resolved before November’s special election, which features Propositions 78 and 79.


Frustrated by Schwarzenegger’s vetoes of the drug importation bills, consumer advocate Anthony Wright qualified Proposition 79 for the ballot. It would allow the state to negotiate deep discounts in drug prices for most of the state’s 6.5 million uninsured residents. Companies that refuse to discount won’t be granted Medi-Cal contracts.


“We know we’re being price-gouged,” Wright said. “Californians and Americans are angry about having to pay more for prescription drugs than anywhere else in the world, including other wealthy industrialized nations.”


To head off the measure, pharmaceutical companies rushed in Proposition 78, which would set up a voluntary discount drug program for the uninsured. They have raised the $75.6 million to promote this measure and blast Proposition 79, with large drugmakers like Pfizer and Merck each contributing at least $9 million. Amgen has given $4.5 million to date.


“Our member companies have been launching state-by-state discount programs just like Proposition 78 for uninsured residents earning up to 300 percent of the poverty level, and the programs have had full participation,” said Billy Tauzin, the former Louisiana congressman who earlier this year became president and chief executive of the Pharmaceutical Research and Manufacturers Association. “Proposition 79 is a price-fixing measure that would be tied up in litigation for years,” he said.


On a broader scale, Tauzin said the pharmaceutical industry has taken several steps to counter its battered image. Among them: setting up a clearinghouse that directs patients and consumers to some of the 800-plus drug discount programs available around the country, changing television ads to make them more informative, and publicizing the fact that the industry hands out more than $4 billion a year in free drug samples to doctors.


While critics say this latter step is merely a marketing ploy, Tauzin noted that when doctors hand out these samples they are effectively reducing the price of these drugs. “It’s two weeks or even a month of free medicine when the patient comes in to visit the doctor,” he said.


Whether these strategies can counter the negative image of drug companies remains to be seen. But it’s a good bet that the poll numbers are unlikely to change much unless the prices go down. And the industry isn’t ready to make those promises.

Howard Fine
Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.
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