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The Other Drug War
Produced and
Directed by Jon Palfreman and Barbara Moran
Written by Jon Palfreman
NARRATOR: This week in Washington, Congressional leaders are racing against the clock to deliver a long promised Medicare Prescription Drug Bill. Mindful of the critical role seniors will play in the 2004 election, George W. Bush is pushing hard to sign a bill before Congress adjourns.
GEORGE W. BUSH: The budget I proposed, which Congress passed, provides 400 billion additional dollars to modernize Medicare and provide a prescription drug benefit. 400 billion!
NARRATOR: Tonight on Frontline, the inside story of America's war over soaring prescription drug prices.
AARP RALLY: This is our battle...affordable drug coverage for people. Are you with us?
NARRATOR: On one side America's seniors fighting for lower prices.
DOROTHY SEARLES, East Waterboro, Maine: It costs, I'd say close to a thousand dollars for one month.
JOHN MORAN, Senior Activist: It's pure and simple greed.
NARRATOR: On the other side, the drug industry warning that price controls will put at risk new cures for everything from cancer to Alzheimer's.
MARJORIE POWELL, PHrMA: When government imposes price controls on an industry, innovation dries up.
NARRATOR: Tonight, FRONTLINE examines the battle ground of America's other drug war.
NARRATOR: The passengers on this bus are drug
traffickers, but they are not interested in cocaine or heroin. They're after Lipitor, Vioxx and
Fosamax, the prescription drugs they need to live. With no drug insurance, Ray and Dorothy Searles of East
Waterboro, Maine, spend nearly $1,000 dollars a month on prescription
drugs. They're heading to Canada
in search of cheaper medicines.
DOROTHY SEARLES, East Waterboro, Maine:
Hopefully, because we each have approximately four prescriptions apiece
a month, we're praying for good, substantial savings.
RAY SEARLES, East Waterboro, Maine: Well,
we're hoping this is going to do the trick, going up here. We've never done it before. We're going to try it and see.
NARRATOR: These bus trips started in the late
1990s, when Maine seniors became progressively alarmed at the skyrocketing cost
of prescription drugs. Seniors are
the biggest users of prescription drugs.
Only 12 percent of the population, they use one third of all prescribed
medications.
CARLEEN SIMPSON, Saco, Maine: These are all the
medications that I have to take daily.
This drug here is Lipitor.
This keeps my cholesterol down, and this is about $140. This is my Fosamax. It's $142 a month for four pills.
NARRATOR: Add in Prevacid and Zoloft, and Carleen
Simpson faces a monthly bill of nearly $600.
CARLEEN SIMPSON: It was getting so it was more than my
Social Security, so I was debating whether or not to eliminate some of
them. Then I heard about the bus
to Canada, and I just had to get on that bus.
NARRATOR: Armed with a six-month prescription for
the drugs they take, the seniors cross the border, anxious to see if their long
journey will pay off.
INTERVIEWER: How'd you do?
RAY SEARLES: Great.
DOROTHY SEARLES: We did wonderful, actually. This is the equivalent to Tagamet. Then I have Imipramine, or something like
that.
CARLEEN SIMPSON: Blood pressure pills, Fosamax for my
bones, Prevacid for my esophagus-
WOMAN: I must have saved two thirds.
RAY SEARLES: Half.
DOROTHY SEARLES: At least half.
RAY SEARLES: Half.
DOROTHY SEARLES: At least half.
CARLEEN SIMPSON: I'm happy. Very happy! [laughs]
WOMAN: It would be just very nice if we could,
you know, have this benefit back in the States and we didn't have to make the
trip.
INTERVIEWER: Going to come back?
CARLEEN SIMPSON: Oh, gosh, yes! You better believe it. [laughs] We just went back in to get a card.
NARRATOR: Seniors like these had stumbled on a
paradox. Canadians were getting
brand-name drugs developed and made in America, but due to Canadian price
controls, they were paying half as much as Americans.
CARLEEN SIMPSON: I think it's disgusting. Every country practically in the world
gets drugs cheaper than we do.
Japan, Germany, England, France-- they all-- Canada-- they all get the
same drugs cheaper than we do.
DOROTHY SEARLES: I don't understand why the United
States cannot stand up for their people, the government -- the people that we
put in office -- can't override these pharmaceutical companies and give us some
benefits.
NARRATOR: How did it happen that seniors ended up
in this position?
NEWSREEL ANNOUNCER: President and Mrs.
Johnson and Vice President Humphrey arrive for ceremonies that will make the
Medicare bill a part of Social Security coverage.
NARRATOR: In 1965, Congress enacted two large
federal health programs: Medicaid for the poor and Medicare for the
elderly. But while Medicaid
covered drugs, Medicare did not.
UWE REINHARDT, Princeton University: It's a
historical accident. In '65, there
really weren't a lot of drugs. And
such as there were, were cheap and could be afforded. Therefore, no one even thought that that was a big
issue. And it really became an
issue only in the late- -mid to late '80s, when drugs became more powerful,
more effective, but also more expensive.
NARRATOR: By the mid 1980s, Congress was trying
to fix things.
SENATOR: [1990] Madam President, on Thursday I will
introduce legislation to assure that our states--
NARRATOR: Time after time they brought the issue
to the floor of the House and Senate.
SENATOR: --prescription drug prices--
NARRATOR: But each time they failed to pass a
law.
Sen. DONALD RIEGLE (D), Michigan: [1994] --that needs to be reformed, and one
that I think we can and must reform this year.
Sen. EDWARD M. KENNEDY (D), Massachusetts: [1999] Mr. President, senior citizens deserve
coverage of prescription drugs under Medicare, and it's time for Congress to
see that they get it.
Rep. GIL GUTKNECHT (R), Minnesota: [1999] I'm introducing the legislation
today. I'm calling on my
colleagues from both sides of the political aisle to join me in this debate.
Vice Pres. AL GORE, Democratic Presidential
Nominee: [2000]
--somebody who will fight for you, somebody who will give a prescription
drug benefit for all seniors.
NARRATOR: During the 2000 election, both
candidates promised a drug benefit for seniors.
Gov. GEORGE W. BUSH, Texas, Republican Presidential
Nominee: A promise made will be a promise kept to our seniors!
NARRATOR: But by the time of the 2000 campaign,
America's uninsured seniors had begun to give up hope that the federal
government would ever act. So the
people of Maine decided to do something on their own. The increasingly popular bus trips to Canada had begun to
attract the attention and support of local politicians, in particular, Democratic
state senator Chellie Pingree.
CHELLIE PINGREE (D), Maine Senate, 1992-2000: On the
last three bus trips, the seniors who have gone have actually saved over
$105,000. So just think of
that. It's amazing. Quite amazing.
NARRATOR: The involvement of Pingree, the
majority leader of the Maine Senate, inspired a radical proposal from the
seniors.
CHELLIE PINGREE: It all started with a meeting in my
office. A senior activist said,
"I've got this great idea. I
think, since we've been taking these bus trips up to Canada, we ought to put a
bill in in the state of Maine that says if you want to sell prescription drugs
in the state of Maine, you have to do so at the same price they do in
Canada." And really, I didn't
think we'd get, you know, that much support for it. I started taking it around to some of my colleagues. I was the majority leader at the
time. And a lot of them said,
"Oh, gosh, Chellie. Another
one of your crazy ideas."
NARRATOR: But the U.S. pharmaceutical industry
took Pingree's crazy idea very seriously.
It took out ads and pressured politicians. Through its trade organization, PhRMA, it dispatched
lobbyists to Maine with one instruction: Kill Pingree's bill.
CHELLIE PINGREE: And one of them actually passed us a
note during the debate that said, "Based on the position the two of you
are taking, you will never receive any more contributions from us." And that was the amazing thing. I mean, I was the majority leader of
the Senate. They were basically
saying, "You can't pass this law in the state of Maine."
NARRATOR: But despite PhRMA's efforts, Maine
didn't give up. On May 11th, 2000,
the Maine legislature held a crucial vote on what had become known as Maine Rx,
a bill that enabled the state to bargain for cheaper drugs, as authorities did
in Canada.
CHELLIE PINGREE: We actually had a unanimous vote in the
Senate and almost unanimous in the House.
It was really exciting. I
just felt like I was representing the people who really needed to have a voice
on this issue and, you know, thought that-- that there was nothing that was
going to stop us.
[www.pbs.org: More about Maine's program]
NARRATOR: Against all odds, Maine's seniors had
taken on the drug industry and won.
In Main Street coffee shops, the mood was defiant.
CARLEEN SIMPSON: If we bargain with every pharmaceutical
company and said, "If you're selling it for so much, I can't afford it,
I'm not buying it," what would these pharmaceutical companies do? Would they consider losing Maine as a
market? I don't think so!
NARRATOR: Commissioner of human services Kevin
Concannon now had to get the drug companies to cooperate. And he had a major bargaining chip: the
state's Medicaid program covering the poor, that purchased nearly a quarter of
all drugs sold in Maine.
KEVIN CONCANNON, Com'r, Maine Dept of Human Services
'95-'03: Medicaid is the largest single purchaser of prescription
drugs. So therefore, the industry
wants to make sure their drugs are available through Medicaid programs.
NARRATOR: As the person responsible for Medicaid
purchases, Concannon planned to shut out those companies that didn't provide a
similar discount for Maine's uninsured seniors.
KEVIN W. CONCANNON: Well, our view was, let's get that
discount for the people in our state who cannot obtain it on their own and who
do not have prescription drug insurance.
UWE REINHARDT, Princeton University: It
seems a natural thing to say, "Look, I'm buying drugs for poor people in
this state at this price. I have
senior citizens who are also poor or near poor, and I want the same
price." That doesn't seem so
off the wall or even so un-American, when you come right down to it.
NARRATOR: But the drug industry regarded Maine Rx
as a dangerous step toward
government price controls.
MARJORIE POWELL, PhRMA: We don't think the government should be
setting prices and telling companies what they can charge. We think that prices should be set
through the market, through negotiations.
That's the way the private sector negotiates.
NARRATOR: On October 26th, 2000, PhRMA unleashed
their response to Maine Rx.
KEVIN W. CONCANNON: The very day the law became effective,
90 days after the legislature ended, PhRMA filed their lawsuit.
NARRATOR: In the Portland federal district court,
the pharmaceutical industry sought and won an injunction barring the state from
going ahead with Maine Rx. The
state's bold plan had been stopped in its tracks.
For seniors, elation turned to anger.
JOHN MORAN, Senior Activist, Maine: It's
pure and simple greed. The drug companies
always had their way, and its very, very difficult for them to give up that
position. Even though they gave it
up in Canada and throughout Western Europe, they held onto the position that
they could charge whatever they wanted to in this country for their meds and
get away with it.
NARRATOR: America's drugs are made by a dozen or
so large companies. Vilified by
critics as price-gouging bullies, most have long given up talking to the media,
preferring instead to be represented by their trade group, PhRMA.
But two companies agreed to talk to FRONTLINE and give their
side of the story: Indianapolis-based Eli Lilly, whose products include Prozac
for depression and Zyprexa for Schizophrenia, and the New Jersey-based Merck
corporation, famous for drugs like Vioxx for arthritis and Fosamax for
osteoporosis.
Lilly is a $70 billion company employing 41,000 people
worldwide. In 2002, they sold over
$11 billion worth of drugs. We
asked Lilly CEO Sidney Taurel why such a large company would be worried about a
small state like Maine.
SIDNEY TAUREL, CEO, Eli Lilly and Company: If the
Maine program was adopted by other states, it could have very dire
consequences. Many countries
outside the United States have a form of price controls, and those price controls
have affected tremendously innovation.
I know, particularly, the case of France, where I lived for eight
years. And 30 years ago, because
of the quality of its scientists, pharmaceutical-- France was number two in
pharmaceutical innovation in the world.
And today, after 30 years of price controls, it is number nine.
NARRATOR: According to Merck's CEO, Raymond
Gilmartin, states like Maine should think twice before interfering with an
American system of innovation that has worked so well.
RAYMOND GILMARTIN, CEO, Merck & Co. Inc.: Well,
there's been some tremendous advances through medicines in the past decade and,
in fact, the last 20 years-- I mean, the fact that by lowering cholesterol with
a cholesterol-lowering drug, you can reduce total mortality for people with
coronary heart disease, prevent secondary heart attacks, prevent the incidence
of stroke.
SIDNEY TAUREL: Very often, pharmaceuticals will help
avoid much more invasive, costly and painful types of medical
interventions. For example, we no
longer have very many ulcer operations, thanks to anti-ulcer compounds.
NARRATOR: According to Taurel and Gilmartin, the
fact that Americans spend more on drugs than ever before signals the U.S.
industry's research success rather than its corporate greed. U.S. drug makers produce the vast
majority of the world's best-selling drugs, including Lipitor for cholesterol,
Clarinex for allergies, Celebrex for arthritis and Fosamax for osteoporosis.
CARLEEN SIMPSON: What I complain about is the fact that
you get a new drug, why does it have to be so expensive? Why invent it if the common person
can't afford it? Why does it have
to be $140-something a month for 30 pills? I mean, come on!
NARRATOR: It's an intriguing question. The chemical ingredients for each pill
cost only pennies. So if pills can
be mass-produced by the million, why then do drugs cost so much? According to Merck and Lilly, the
answer to this simple question is the key to understanding the drug industry.
SIDNEY TAUREL, CEO, Eli Lilly and Company: The
cost of pharmaceuticals is very affected by the cost of research. The research into pharmaceutical
products is long, is expensive and is risky. It takes 12 to 15 years between the time we develop a
concept to the time we have a product on the market.
NARRATOR: This is the industry's story of why new
drugs like Vioxx and Prozac cost so much to develop. Typically, drug discovery begins with an idea for a new
disease target, often licensed from a university laboratory or biotech company. Then industry researchers start sifting
through tens of thousands of compounds, looking for one that will hit the
target.
THOMAS SALZMANN, Merck & Co., Inc.: The
vast majority of those fail. Years
are going by while this happens.
Frequently, 5 or 10 years could elapse just in this period of the
research until we get to a molecule that we think is suitable to take to the
next step.
NARRATOR: Now they test the candidate drug in
animals, to look for toxic side effects.
If it is toxic, the scientists must go back to the drawing board and
start all over again. Only 1 in 50
drugs pass this stage and make it to clinical trials in humans. The surviving drugs now enter the most
expensive part of the process, three phases of human clinical trials, which eat
up the majority of development costs.
For every five drugs entering clinical trials, only one will make it to
market.
SIDNEY TAUREL: And finally, only 3 products which
reach the marketplace out of 10 will recoup their costs of R&D. So it's a very, very, very risky
business. And as a result,
investors expect high returns to compensate for the high risks of this
business.
[www.pbs.org: Read his interview]
UWE REINHARDT: The total cost per successful drug--
it's certainly somewhere in the hundreds of millions. It's just like drilling for oil. When you drill for oil, you drill a lot of dry holes,
nothing there, and eventually you hit a gusher. And all the cost of the dry holes have to be recovered from
the oil in the gusher. That's well
known in oil. The same is true in
the pharmaceutical industry. All
of the dead ends that they run into, the cost of that has to be charged,
ultimately, to the successful drug.
NARRATOR: Two of Merck's gushers that have made
billions are the arthritis drug Vioxx and the asthma medication Singulair. Both were developed under the direction
of Merck scientist Jilly Evans.
JILLY EVANS, Merck Research Scientist: They
say in a pharmaceutical career, you're very lucky to touch one drug that makes
it to market. One drug. So I count myself as very lucky I've
had Singulair and Vioxx.
Singulair-- it was a long process-- 19 years, really, from the beginning
of the project to the launching in '98.
But it's well worth it.
NARRATOR: Evans also helped pioneer the arthritis
drug Vioxx, which many seniors use at a price of nearly $100 a month.
JILLY EVANS: I have a great deal of sympathy for the
older person who is spending 30 percent of their income on
pharmaceuticals. I'm not at all
trying to say that I know the answers.
I do know that you won't have innovative research if you don't allow
pharmaceutical companies to make a good profit.
NARRATOR: Evans's creations were certainly
profitable. In 2002, Singulair
earned Merck some $1.5 billion.
Vioxx did even better, earning $2.5 billion. That's nearly as much as the entire budget of the state of
Maine. And while the industry
claims it needs its profits to pay for all the thousands of drugs that fail,
critics are not so sure.
MARCIA ANGELL, M.D., Harvard Medical School: The drug companies make the case that their prices
are so high and that total expenditures are so high because their R&D costs
are very high, as though they were just eking out, just barely managing to
survive.
NARRATOR: Marcia Angell, former editor of The
New England Journal of Medicine, does not believe that price
controls will threaten new drug discovery for one main reason.
Dr. MARCIA ANGELL: The pharmaceutical industry is
stunningly, staggeringly profitable.
The 10 drug companies on the Fortune 500 list last year took in net profits of
18.5 percent on sales. That's 18.5
percent. That is stunning. The median for the other industries on
the Fortune 500 list was a little over 3 percent, 3.3
percent of sales. And this has
been the case for the last 20 years.
NARRATOR: Given such stellar profits, would price
controls really kill innovation?
The claims and counterclaims go back and forth.
MARJORIE POWELL, PhRMA: When government imposes price controls
on an industry, innovation dries up.
If you think of regulated industries, there is not a lot of new research
and development. The
pharmaceutical industry in the United States, because it's not been operating
under price controls, is the engine of new research and development.
KEVIN W. CONCANNON, Commissioner, Maine Dept of Human
Services, Feb. 1995-Feb. 2003: I know they have to be profitable to
maintain their ability to do research and to provide a product, but they don't
have to make the margins that they make.
There's nothing written in stone somewhere that says, hey, they have to
make 20 percent margins.
NARRATOR: To shed light on this polarized
dispute, FRONTLINE asked two independent experts for their analysis: Princeton
economist Uwe Reinhardt, a widely respected commentator on U.S. health policy,
and Richard Evans, a drug industry analyst with the New York research firm
Sanford C. Bernstein & Co., highly regarded for its unbiased financial
reports.
RICHARD T. EVANS, Sanford C. Bernstein & Co.: I
think, as a society, we've got two important questions here. One is, how do we make sure that
everyone has access to the existing technology? And how do we make sure that we do that in such a way that
we don't wreck our access to better technology tomorrow?
UWE REINHARDT: This is one of the problems with health
care in general and pharmaceutical products, in particular. The U.S. market at the moment is really
the engine of innovation because we are willing to tolerate, so far, high
prices. And that, of course, gives
our industry, our pharmaceutical industry the money to fund R&D.
NARRATOR: So what would happen to R&D if we
controlled prices as they do in Canada?
RICHARD EVANS: If we control prices today, then
management is going to spend less on R&D and we're going to get fewer products
tomorrow. So if we want price
controls today, we've just got to realize that we're a capitalist society, we
finance these companies and control these companies and measure these companies
through the capital markets.
They're going to restrain R&D, which means we're going to get fewer
products. It is an inevitable
trade.
UWE REINHARDT: What would they cut? They wouldn't cut reasonably sure
blockbuster things that may not be all that great in terms of what they
actually do for people but there's a big market. They wouldn't touch that. They would go after smaller niche products with high risk.
NARRATOR: One such niche product is Lilly's
life-saving drug for septic shock, Xigris, currently available at over $6,000
per treatment.
RICHARD EVANS: It was a very difficult drug to
discover and develop. It's a very
expensive drug to manufacture. If
you didn't think that you were going to be able to set the price for Xigris --
i.e., if you really felt that it was going to be set for you -- I bet Lilly
probably wouldn't even have developed it.
Or let's take a Roche drug, Fuzeon, which was just priced in Europe at
$22,000 a year, and it's the only drug for AIDS patients who have become
resistant to other therapies. It's
an exceedingly expensive drug to manufacture. If back in the days when you were just planning that drug,
if you felt that you wouldn't have the ability to set that price -- in other
words, that price would be set for you -- you never would have developed that
drug.
[www.pbs.org: Read the extended interview]
NARRATOR: So what will Maine Rx mean for the drug
industry?
UWE REINHARDT: Well, if the people of Maine control
prices and no one else does, it won't have much of an effect because Maine is
not that big a state. If a lot of
states did it and the revenue stream to the drug industry would go down, I
think it would be crazy to assume that that would not affect research and
development. It would.
NARRATOR: In Maine, seniors and politicians
acknowledged the issue of future innovation but were more focused on getting
lower prices today.
CHELLIE PINGREE (D), Maine Senate, 1992-2000: We're
all completely committed to major advances in medicine and in prescription
drugs, but this is the health care system. And you're not talking about a computer chip or a Rolls
Royce or some product which, you know, maybe you have the right to make all the
profits you want in the world.
This is something that keeps people alive.
NARRATOR: One year on, Maine Rx was still mired
in the courts.
STEVEN ROWE, Maine Attorney General: PhRMA
has unlimited financial resources.
We know that. But we have
great legal staffs and we have great arguments, and I think, you know, we're in
the right here. We're trying to
make prescription drugs affordable for people.
NARRATOR: On March 5th, 2001, Maine's appeal was
heard by the 1st Circuit Court of Appeals in Boston. And this time, the court sided with Maine. But again, PhRMA wasn't beaten. It persuaded the court not to let Maine
Rx go ahead immediately, allowing them to appeal the case to the U.S. Supreme
Court. Observers everywhere waited
to see what would happen.
RICHARD T. EVANS, Sanford C. Bernstein & Co., LLC: If
Maine were successful in the Supreme Court, I think two years later, you've got
virtually every state doing the same thing.
NARRATOR: Alarmed by the idea that other states
might follow suit, PhRMA --long the opponent of federal action -- now started
lobbying the U.S. Congress to pass a drug bill for seniors.
MARJORIE POWELL, PhRMA: In this day and age, when drugs are
such an important part of the health care system, to have the federal program
for seniors not cover drugs just makes no sense. So we're urging members of Congress to enact a Medicare drug
benefit.
NARRATOR: Currently, drug companies have many
private customers, like HMOs, and one big government customer, Medicaid. If Congress simply added a drug benefit
to Medicare, as the Democrats propose, government would then control, by some
estimates, 52 percent of the drug market, and with it, the power to dictate
prices.
So instead, PhRMA was pushing a Republican plan, where
federal tax dollars subsidized hundreds of private insurers, purchasers big
enough to negotiate but not to dictate drug prices. But observers were skeptical that Congress could reconcile
two such different plans.
UWE REINHARDT, Princeton University: We
have the deadlock that is sort of 50-50, which is paralytic, so nothing can
happen. So I think this is, in
fact, where the states have to take the lead.
NARRATOR: Maine wasn't the only state involved in
the prescription drug war. In the
Northwest, the state of Oregon had a history of taking bold positions on
difficult health issues, from rationing to euthanasia. Oregon's government realized that along
with seniors there was another group affected by skyrocketing drug prices: the
uninsured poor, covered by Medicaid.
This became the top priority of Governor John Kitzhaber, a former
emergency-room physician.
Gov. JOHN KITZHABER (D), Oregon 1995-'03:
They're eating up the Medicaid budget. The size of the increase was stunning. Between the last budget cycle and this
budget cycle, pharmaceuticals went up over 60 percent. As costs increase in the U.S. system,
the way we deal with it is we squeeze people out. We deny access to other people. So the fact that the drugs were going up was resulting in
other people not getting access to anything, you know, like insulin, like
penicillin.
NARRATOR: Kitzhaber realized that if the state
spent health dollars more efficiently, Medicaid would reach more people. But he believed that Oregon's current
drug usage was riddled with waste.
Gov. JOHN KITZHABER: I have a young man who works for me
that had pain in his wrist, and he went to see his doctor and came back with a
prescription for Celebrex, which is an enormously expensive anti-inflammatory
drug. That cost about $75 a
month. There's no clinical
evidence to suggest that Celebrex is any more effective than across-the-counter
Ibuprofen, Advil, at $7 a month for an otherwise healthy young man with no
history of gastrointestinal problems.
So the difference is $68 -- $68 that contributed to the escalation of
health care costs but didn't produce a health benefit.
NARRATOR: Kitzhaber believed that such waste was
happening all over Oregon, and the only way to reduce it was to make people
aware of the true costs and benefits of available drugs.
Gov. JOHN KITZHABER: Instead of asking simply
how we can simply finance this increasing cost, we should be asking why do
these drugs cost so much in the first place, and what are we getting in terms
of health for this huge, growing expenditure?
NARRATOR: Out of these discussions, Oregon would
later build its own drug bill, based not on controlling prices but on
maximizing value for money.
But observers realized Kitzhaber had hit on a crucial point
that was true for all Americans.
As long as people remained ignorant of both the benefits and costs of
drugs, there was little hope of controlling expenditures. The key was information. In pockets across America, there were
growing discussions about the costs and the benefits of prescription drugs.
That debate became central to the survival of this business,
Fraser Papers in northern Maine.
Fraser Papers employs over 1,000 people. Although the workers had health insurance, union leader Joel
Pelletier began to realize that rising health costs -- especially prescription
drug coverage -- were threatening their jobs.
JOEL PELLETIER, Union President, Fraser Papers, Inc.: I've
been working at a paper mill since I've been 19 years old. The employees are bearing more and more
of the costs of the health care because, quite frankly, the employers can't
afford it. So we're giving our pay
raises to the insurance premiums.
NARRATOR: In an unusual example of close
cooperation between management and workers, Fraser took a bold step. It fired its managed care company and
hired a consultant, Brent Churchill, to analyze meticulously where their health
premiums were going. And his
analysis showed that, among other things, prescription drug costs were out of
control.
At monthly union meetings, Churchill gave workers and
management the grim facts.
BRENT CHURCHILL: Lipitor, from August of last year
through July of this year-- you can see that just that one drug alone is nearly
$40,000.
NARRATOR: So Churchill suggested a way every
worker could help: avoid expensive brand-name drugs and choose generics.
BRENT CHURCHILL: I mean, there's a huge savings, in some
cases, in going from that brand name over to the generic. In this particular one you're looking
at, the brand costing $114 and the generic costing $13.16.
FRASER WORKER: I just can't believe the amount for the
generic versus the name brand.
JOEL PELLETIER: You know, you got pay the bills. And it comes to the point where the
bills are more than what you can make, well, you lose your business. The business goes down. And it's happening.
NARRATOR: As drug spending escalates, more and
more health care plans are putting pressure on workers to use generic
drugs. New York-based Barr
Laboratories is one of the largest makers of generic drugs. It produces drugs much more cheaply
than companies like Lilly and Merck.
This line is packaging generic Prozac, a mega-blockbuster drug which
earned Lilly over $2 billion a year until one day in 2001, when its patent ran
out. The day the patent expired,
Barr Labs was ready to go.
BRUCE DOWNEY, CEO, Barr Laboratories Inc.: The
first day that we were authorized to ship generic Prozac, fluoxetine, we shipped
a hundred million capsules. We
shipped on Friday. By Monday
morning, the product was widely distributed in the United States. And in a matter of just weeks, we had
captured 80 percent of the market.
NARRATOR: Some six months later, the wholesale price
of Prozac had fallen from $240 a bottle to less than $5, saving American
consumers billions and decimating Eli Lilly's profits. But Eli Lilly insists the only reason a
generic manufacturer like Barr can pull this off is because it didn't bear the
costs of inventing Prozac.
ROBERT ARMITAGE, Gen'l Counsel, Eli Lilly and Co.: It's
equivalent, really, to the motion picture industry. If you want to copy a Divorced, once a movie comes out on
digital video disc, it might cost you 50 cents to copy it. But that first DVD you make is perhaps
a $2 million or $300 million investment, by the time you look at the cost of a
movie and the cost of its promotion.
So we're almost in exactly the same boat.
NARRATOR: Lilly concedes that companies like Barr
have an important role, offering yesterday's drugs at low prices. But Lilly points out that generic
companies will simply not invent the drugs of tomorrow for diseases like cancer
and Alzheimer's. Only brand-name
companies, ready to invest billions of dollars a year, can do this.
SIDNEY TAUREL, CEO, Eli Lilly and Company: If
America is responsible for the great majority of pharmaceutical innovation, it
is because we have a free market system which allows innovation to
prosper. And the prospects for the
future, in terms of finding new cures, will be achieved only if we keep that
free market environment going.
MARCIA ANGELL, M.D., Harvard Medical School: It's a
threat. It's a threat to the
American public. They are saying,
"Don't mess with us. Do
nothing about our obscene profits.
Do nothing about these unsustainable increases in prices, or else we
will not give you your miracle cures." Well, guess what?
They're not giving you the miracle cures in the first place.
NARRATOR: Critics like Marcia Angell charge that
the industry is not telling the whole story. For all the talk of innovation, many of today's best-selling
drugs are similar to drugs already on the market. The success of these so-called "copycat" drugs,
the critics claim, has as much to do with marketing as with medicine.
Gov. JOHN KITZHABER (D), Oregon, 1995-2003: They
spend massive amounts of money advertising. Merck spent $160 million last year advertising one of their
major drugs, which is more than Anheuser-Busch spends to advertise Budweiser. It's more than PepsiCo spends to
advertise Pepsi-Cola.
TELEVISION COMMERCIAL: Ask your doctor about
Vioxx.
Gov. JOHN KITZHABER: It creates a demand for a particular
brand-name drug without any consideration of the fact that there may be other drugs
to treat the same condition that are just as effective, or more effective but
less costly.
NARRATOR: Since 1997, direct-to-consumer
advertising has reached all parts of America, and many doctors complained it
was distorting the practice of medicine by creating demand for the most
advertised drugs.
TELEVISION COMMERCIAL: Why wait? Ask your doctor about a bone density
test.
FRANK BAUMEISTER, M.D., Oregon Health Resources
Commission: It's been shown that about 30 percent of physicians will
provide the drug. It's easier to
write a prescription than to give a long dissertation and explanation to try to
dissuade a patient when your waiting room is full and you've got a patient in
the next examining room that's been waiting, particularly if you don't think
it's going to make that much difference.
SIDNEY TAUREL: I think direct-to-consumer advertising
has some very important public health benefits. One is you can see, for the majority of the products which
are advertised, that they deal with conditions which, according to medical
experts and the data available, are under-treated, diseases such as depression,
such as diabetes, such as hypertension, such as high cholesterol. All of these areas are today under-treated,
and direct-to-consumer advertising helps educate patients and bring them to the
doctor's office.
UWE REINHARDT, Princeton University: My
feeling is a good doctor should say, "Yeah, it's a good drug" or say,
"Actually, let me show you. I
have a study here. That drug, for
the money, isn't worth it."
But in fact, even doctors tell you most of the information about drugs
comes to them from people who are trying to sell a drug.
NARRATOR: The bulk of the industry's marketing
effort is aimed not at consumers but at the doctors who have the power to
prescribe.
Dr. FRANK BAUMEISTER: And the physicians get their education
in that way, and that education is not objective. It's very biased.
But in a way, the physicians are at the mercy of the drug salesmen.
Dr. MARCIA ANGELL: There is a conflict of interest
there. It's as though you look to
beer companies to educate you about alcoholism. They have $8 billion worth of free samples. The doctors hand out the free samples,
and from that point on, both the doctor and the patient are hooked on that
particular drug. And believe me,
it's not going to be a generic, and it's not going to be a drug that's just
going off patent. It is going to
be a new, newly patented, high-price drug.
[www.pbs.org: Read her interview]
NARRATOR: Various experts have tried to break
down just how a drug company spends its money. According to analyst Richard Evans, about 16 cents of every
dollar the drug industry earns is spent marketing to doctors and patients. That's more than the industry spends on
R&D.
RICHARD EVANS: There's just way too many sales
people. The best thing to do, for
the industry to model, is to pull back sales and marketing 5 percent and spend
it on R&D.
So let's say you go ahead and do that, but you move
first. Your biggest problem is
your competitors have more share voice in the market and more product demand
than you do. It's a pathway to
putting yourself out of business.
It's not that the industry loves having a lot of sales reps. I don't know a single CEO that wouldn't
prefer to trade salespeople for research.
You can't. You can't
unilaterally disarm.
NARRATOR: The state of Oregon knew that the
industry wouldn't reduce its marketing, so it came up with its own
solution. In Kitzhaber's view, the
antidote for aggressive marketing was to give physicians what they lacked: an
unbiased, objective source of information, something we take for granted with
most other commercial products.
Gov. JOHN KITZHABER: Imagine how difficult it would be
for you, as a consumer, to buy a toaster or a car or an appliance without Consumer
Reports, that gives you objective information to compare those
products. That doesn't exist in
the drug market today. Really, all
we're trying to do in Oregon is to create a Consumer Reports for
prescription drugs.
NARRATOR: Thus was born Oregon's drug bill. Oregon's Consumer Reports sought to protect physicians from drug
reps and guide them to drugs that delivered the most health care bang for the
buck. Drugs which failed to
demonstrate their value would not appear on Oregon's so-called preferred drug
list.
Lobbyists descended on Salem, Oregon, to try and stop the
bill in its tracks.
Dr. ALAN BATES, Oregon State Rep.: At the
end of session, in the Oregon legislature, PhRMA had 26 lobbyists in the
building trying to stop this bill from going through. The pressure was intense.
Gov. JOHN KITZHABER: And they managed to keep the bill
bottled up in committee and never had a public hearing, which is pretty
remarkable in a state like Oregon that prides itself on public process. Well, I told them that if they didn't
put the bill on the floor, I was going to veto the entire budget for the
Department of Human Services, over a billion dollars, and call them back in two
weeks to rebalance the budget, and then get on the state plane and go around
the state explaining how the leadership was in the pocket of the multi-national
drug companies. And miraculously,
the bill showed up on the floor, actually, late on the last night of the
session.
OREGON POLITICIAN: Thank you, Mr.
President. This is what is called
the Practitioner Managed Prescription Drug Plan.
Gov. JOHN KITZHABER: It passed by a comfortable margin in
both houses.
NARRATOR: Now came the hard part. Oregon's Health Resources Commission
convened a series of open hearings to compare drugs in head-to-head studies for
safety and efficacy. Blockbuster
drugs, which had enjoyed such success when marketed directly to patients and
doctors, now had to survive the scrutiny of Oregon's scientific watchdogs. And by August, 2002, it was clear that
many blockbusters had failed to make the preferred list.
JOHN SANTA, Office for Oregon Health Policy &
Research: Well, one of the first classes that we looked at was a class
called proton pump inhibitors, the heartburn drugs.
NARRATOR: In this class were drugs like Prevacid,
Nexium and Prilosec.
Rep. ALAN BATES: There are out there at least 125
carefully done studies on those drugs.
Luckily, in this group of drugs, they don't conflict with each other
much. They all say about the same
thing. Those drugs are all
effective and do a good job.
Dr. FRANK BAUMEISTER: And if there's no difference, in terms
of activity, then the only criterion on which to measure was price. And that's what they did.
JOHN SANTA: And we chose Protonix, Aciphex and
Prevacid, and all three have increased their market share, especially
Protonix. We did not choose
Prilosec or Nexium. And both drugs
have decreased significantly in terms of their market share.
[www.pbs.org: More on Oregon's list]
NARRATOR: Many other blockbusters didn't make
Oregon's Consumer Reports.
Vioxx and Celebrex were passed over in favor of cheaper alternatives, as
was the pain medication Oxycontin, which was passed over in favor of much
cheaper generics.
What do the drug companies think?
SIDNEY TAUREL, CEO, Eli Lilly and Company: In
general, I think the more information physicians have about the benefits of
drugs and their costs, the better they are going to be. Where I object is when this results in
saying drug A is the only one that you can prescribe to all your patients. If you prescribe drug B, you have to
get an approval from a bureaucrat.
Gov. JOHN KITZHABER: I think it's a fair question, and we
designed this bill to make sure that we didn't substitute government
regulations or rules for clinical judgment.
Dr. FRANK BAUMEISTER: We have an exception process built into
this program.
Gov. JOHN KITZHABER: All you have to write is "Do
not substitute" or "DNS" right across the face of the
prescription, and we pay for whatever the other drug is. I think a lot of states have tried
things like this, but very few states have actually got anything through their
legislature, and that many of the states that have, immediately are sued by the
drug companies. Maine was sued. Michigan was sued. And they're deciding whether to sue us
here in Oregon.
NARRATOR: PhRMA's lawsuit had tied up Maine Rx
for three years. But on January
22nd, 2003, the case was finally heard by of the U.S. Supreme Court. A Maine delegation traveled to
Washington to watch what they hoped was the last chapter of their
struggle. But inside the Court,
which is off limits for television cameras, the nine Supreme Court Justices had
many tough questions for Maine.
Justice Breyer: "How could Congress possibly want a statute which
would hurt Medicaid patients?"
Justice Scalia: "You think that's one of the valid uses of the
authorization provision, so that a state could shake down drug companies?"
CHELLIE PINGREE, (D) Maine Senate, 1992-2000: Many
of us left the United Sates Supreme court and said, This does not look
good"-- you know, sort of feeling like, you know, I'm not sure these guys
are listening. I mean, I felt like
it's a shakedown of senior citizens in our country, and I was really worried that
we weren't going to be able to proceed.
NEWSCASTER: The U.S. Supreme Court today gave the
green light to Maine's pioneering yet controversial prescription drug law.
NARRATOR: In a surprising 6-3 decision issued in
May, the Court ruled against PhRMA and lifted the injunction against Maine Rx.
STEVEN ROWE, Maine Attorney General: We've
got the ball now and we're moving forward. And we're going use it to lower prescription drug prices for
the Maine citizens.
CHELLIE PINGREE: It was just an amazing thought that the
state of Maine-- that they could take that challenge all the way to the Supreme
Court and win was a great victory for all of us, a very, very exciting notion.
NARRATOR: At almost the same time, events
accelerated in Washington. President
Bush suddenly sent out new signals he was now willing to compromise on his
stand that he would support a prescription drug benefit only if it were part of
a broader reform effort to privatize Medicare.
Pres. GEORGE W. BUSH: We've got a growing consensus in both houses of Congress and in both political parties, a consensus that our seniors need more choices and better benefits, including prescription drugs.
NARRATOR: Then last June, both Houses of Congress voted for their different versions of a 400 billion dollar Medicare prescription drug benefit for seniors.
SENATOR BILL FRIST: Tonight Seniors and individuals with disabilities through this bill will get relief from high prescription drug costs and outdated often inadequate medical care.
JULIE ROVNER, NPR: Both the House and Senate actually passed their bills on the same night.before the July 4th recess. And I think everybody thought it was about to happen.
UWE REINHARDT, Princeton University: Bush needed it, republicans needed it and the democrats wanted it. There was an alignment there. On the other hand, the cognascenti knew there are very tricky issues that have to be negotiated.
NARRATOR: Before President Bush could sign it into law, the two very different drug bills needed to be reconciled by a special conference committee. But could a deal be crafted that would satisfy all the parties: from the drug industry to uninsured seniors?
JULIE ROVNER, NPR: I think the major sticking point is that Republicans really considered the drug benefit to be secondary to reforming Medicare. For instance privatize the program or put a cap on overall Medicare costs. Those are things that the democrats think are anathema, that they say would undermine Medicare, which they see as one of the crown jewels of government policy. And they're simply not willing to see Medicare destroyed-- and that's the word they've been using-- in order to get this drug coverage.
NARRATOR: The drug industry also wanted the 400 billion dollars to be spent by private HMOs, rather than the government. This would protect their ability to set prices and give them a nice windfall.
UWE REINHARDT, Princeton University: The 400 billion, a lot of that money would be pure gravy for the drug companies for pills that have already been researched. All you've gotta do is push a button and pump out another hundred thousand pills.
NARRATOR: But events aren't all going the drug companies' way. While congress negotiates, states are keeping up the pressure, with several actually seeking to import drugs from Canada, an idea that appeals to some in congress as well.
To prevent this, Eli Lilly and other drug companies have announced that they will strictly limit the number of drugs they sell to Canada.
Meanwhile, back in Washington, the drug bill was in trouble. After five months of negotiations, observers were increasingly skeptical that congress could deliver a deal before it adjourned.
RICHARD T. EVANS, Sanford C. Bernstein & Co.: I'm less optimistic. We've had the entire summer and fall to bridge what is probably an irreconcilable ideological gap. And we've failed.
NARRATOR: Then, on November 13, 2003, Congressional Republican leaders stepped in to try and force a last minute compromise. While some Senate liberals and some House conservatives have signaled their opposition, chances for a Medicare drug bill have now improved..although final passage remains uncertain.
RICHARD EVANS: The drug industry views a Medicare drug benefit as ultimately inevitable. And I think the industry feels that with a Republican in the White House and Republican majorities in both chambers of congress that now's the time.
NARRATOR: What began with seniors organizing bus trips to Canada has grown into a major political crisis that has shaken the mighty drug industry. Whether the states or the federal government take the lead--the question remains: can drug companies continue to charge Americans the highest prices in the world? Or will this conflict lead to the end of a free market in prescription drugs.
The Other Drug War
PRODUCED AND DIRECTED BY
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and Barbara Moran
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ANNOUNCER: Tonight's report continues at FRONTLINE's Web site, which offers a closer look at how the states have taken on the pharmaceutical industry, answers to some frequently asked questions about drug costs, FRONTLINE's extended interviews, a chance to join the discussion about this issue and more at pbs.org.
Next time on FRONTLINE:
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DID LEE HARVEY OSWALD ACT ALONE? OR WAS HE PART OF A VAST CONSPIRACY?
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