Return to Nicholas Johnson Main Web Page www.nicholasjohnson.org

We combine public and private enterprise. ... A privately owned building has government inspectors examining the safety of elevators or the cleanliness of restaurants. We do what works.

There’s something problematic about private profit maximization as a delivery mechanism for a nation’s health. Most countries’ public, single-payer systems deliver better care at less cost. (Even with our projected $3 trillion price tag, 45 to 85 million Americans have no, or serious gaps in, health insurance.)

But we wanted to give drug companies a chance. … They’ve blown it. Their overreaching and abuses, political manipulation and personal greed killed their golden goose. …

Monopolistic patents on drugs providing little or no “significant clinical improvement.” Fighting generics (sometimes with payments to competitors of $4.5 million a month to keep them off the market). Lavish spending to influence doctors ($7 billion in 1998). Pricing disparities that make Americans pay the highest prices in the world and overcharge seniors in particular. Direct marketing to consumers of drugs they may not need and are legally prohibited from buying without prescriptions. …

For decades, profits at or near the top in each of Fortune’s three measures of profitability … . Price hikes well beyond inflation contribute to drug spending doubling since 1997.

Increases driven by an industry with one of the highest advertising budgets (over $2.5 billion). …

Obscene, eight-figure executive salaries — plus stock options.

And all sustained with some of the most generous lobbying and campaign contributions on record ($74 million on lobbying during the 105th Congress; $13 million in contributions) — producing the lowest tax rates of any industry.

There are working models of how it might be different without total nationalization.

• The government, not banks, prints $20 bills. No bank has a patent on the $20, limiting competitors to $5 and $10 bills. Banks compete with interest rate differentials and nicer china for new accounts.

• The Defense Department spends billions on research. Most is of little use beyond weapons. But some is. And it’s available to all, whether the Internet itself or an innovation copied in commercial airline design.

• Ironically, a substantial share of the drug companies’ profits already comes from taxpayer-funded research and testing of products. ...

• The 50 most heavily advertised (and expensive) drugs produce half the industry’s income. The other half comes from 9,850 drugs. Let’s identify and encourage the use of the most effective generics.

• Expand the government’s role in drug research but focus on essentials. Change the patent laws. No more research on, and monopolies for, copy-cat modifications.

• The results of government research should be public domain (generics) — like the $20 bills. Drug companies could color them purple and otherwise compete — and still make healthy profits.

• Maintain the capacity for the government to engage in the manufacture and retail sales of drugs (like the TVA in electric power) if abuses continue.

• Amend the patent laws to substantially shorten their terms. Do everything constitutionally possible to cancel, shorten terms or buy out company patents on essential medicines.

_______________

Nicholas Johnson of Iowa City is a former co-director of the University of Iowa Institute for Health, Behavior and Environmental Policy. Contact him at www.nicholasjohnson.org.

Looks like we’ll have to nationalize pharmaceutical research, abandon patents, and put drugs in the public domain – at affordable prices.

Those words do not spring naturally from my keyboard. Market competition can be the consumer’s best friend. It’s my first choice.

But our drug market isn’t working.

Like most Americans, I prefer pragmatism to ideology. Are our interstate highways, national parks, military and public libraries "socialist”? Who cares? They work.

We combine public and private enterprise. A public school uses private lawn maintenance. A privately-owned building has government inspectors  examining the safety of elevators or the cleanliness of restaurants.

We do what works.

There’s something problematical about private profit maximization as a delivery mechanism for a nation’s health. Most countries public, single-payer systems deliver better care at less cost. (Even with our projected $3 trillion price tag,¹  45-85 million Americans have no, or serious gaps in, health insurance.² )

But we wanted to give our drug companies a chance.

They’ve had their chance. They’ve blown it. Their overreaching and abuses, political manipulation and personal greed, killed their golden goose.

To list all evidence would create a document like the Declaration of Independence’s itemization of American colonists’ grievances.

Monopolistic patents on drugs providing little or no “significant clinical improvement.”³  Fighting generics (sometimes with payments to competitors of $4.5 million a month to keep them off the market⁴ ). Lavish spending to influence doctors ($7 billion in 1998⁵ ). Pricing disparities that make Americans pay the highest prices in the world⁶  and overcharge seniors in particular.⁷  Direct marketing to consumers of drugs they may not need and are legally prohibited from buying without prescriptions. (“Illegal drugs”?)

The results are in the numbers. For decades, profits at or near the top in each of Fortune’s three measures of profitability (three times the all-industry average; Pfizer’s 1998 profit margin was 25 percent⁸ ). Price hikes well beyond inflation contribute to drug spending doubling since 1997.⁹

Increases driven by an industry with one of the highest advertising budgets (over $2.5 billion¹⁰ ). (Merck’s $160 million Vioxx ad budget boosted sales from $330 million to $1.5 billion.¹¹ )

Obscene, eight-figure executive salaries – plus stock options.¹²

And all of it sustained with some of the most generous lobbying and campaign contributions on record ($74 million on lobbying during the 105th Congress; $13 million in contributions¹³ ) – producing the lowest tax rates of any industry.¹⁴

There are working models of how it might be different without total nationalization.

• The government, not banks, prints $20 bills. No bank has a patent on the $20, limiting competitors to $5s and $10s. Banks compete with interest rate differentials and nicer china for new accounts.

• The Defense Department spends billions on research. Most is of little use beyond weapons. But some is. And it’s available to all, whether an innovation copied in commercial airline design -- or the Internet.

• Ironically, a substantial share of the drug companies’ profits already comes from taxpayer-funded research and testing of products.

1. The 50 most heavily advertised (and expensive) drugs produce half the industry’s income. The other half comes from 9850 drugs.¹⁵  Let’s identify and encourage the use of the most effective generics.

2. Expand the government’s role in drug research, but focus on essentials. Change the patent laws. No more research on, and monopolies for, copy-cat modifications.

3. The results of government research should be public domain (generics) – like the $20 bills. Drug companies could color them purple and otherwise compete – and still make healthy profits.

4. Maintain the capacity for the government to engage in the manufacture and retail sales of drugs (like the TVA in electric power) if abuses continue.

5. Amend the patent laws to substantially shorten their terms. Do everything constitutionally possible to cancel, shorten terms, or buy out company patents on essential medicines.

Nicholas Johnson, a former co-director of the University of Iowa Institute for Health, Behavior and Environmental Policy, uses generics and maintains a Web page at www.nicholasjohnson.org

1.  National Institute for Health Care Management, “Changing Patterns of Pharmaceutical Innovation” (May 2002), p. 18.

2.  Joel Miller, “A Perfect Storm: The Confluence of Forces Affecting Health Care Coverage” (National Coalition on Health Care, Nov. 2001). http://www.nchc.org/survey.html (June 11, 2002). Note: As of 24 May 2024 the original NCHC site is no longer available. This link is provided for archival reference only.

3.   “Half of the new drugs approved in the 1990s were for ‘new formulations’ or ‘new combinations’ of already approved compounds.” Michie I. Hunt, Prescription Drugs and Intellectual Property Protection: Finding the Right Balance Between Access and Innovation (Washington: National Institute for Health Care Management, August 2000), quoted in Families USA, “The Drug Industry Facts and Figures,” a pdf link from http://www.familiesusa.org/html/drugs/drugs.htm (June 11, 2002). A more detailed analysis and approach to “levels of innovation” is provided in National Institute for Health Care Management Research and Educational Foundation, “Changing Patterns of Pharmaceutical Innovation” (May 2002). http://www.nihcm.org (June 11, 2002). The report differentiates, for example, “new molecular entities” (NMEs) from “incrementally modified drugs” (IMDs). Two-thirds of all “new drugs” approved by the FDA 1989-2000 used active ingredients already on the market. Id. p. 7. Only 15 percent were “highly innovative priority NMEs.” Id. p. 9.

4.  “In one case, a brand-name drug manufacturer paid a generic manufacturer $4.5 million a month to not market its generic; in another case, payments were $10 million per quarter.” Ibid. Citing In re Terazosin Hydrochloride Antitrust Litig., 164 F. Supp. 2nd 1340 (S.D. Fla. 2000) and In re Cardizem CD Antitrust Litig., 105 F. Supp. 2d 682 (E.D. Mich. 2000).

5.  “[M]arketing their products to physicians . . . reached an all-time-high of $7 billion in 1998.” Senator Tim Johnson, “The Bitter Pill” (newsletter).

6.  “Americans pay the highest prices in the world for our prescription medication . . ..” Senator Tim Johnson, “The Bitter Pill” (newslatter). Senator Johnson was one of the sponsors of S. 1191, the International Prescription Drug Parity Act.

7.  See, e.g., Public Citizen Congress Watch, “New Hampshire Consumers Pay More for Prescription Drugs While Pharmaceutical Profits Soar” (“seniors are being charged retail rpices more than double”), http://www.citizen.org/congress/reform/state_rx_price/articles.cfm?ID=814 (June 11, 2002).

8.  Congressman Bernie Sanders, “New Figures Prove Pharmaceutical Industry Continues to Fleece Americans,” http://bernie.house.gov/prescriptions/profits.asp (June 11, 2002); and see Senator Tim Johnson, supra.

9.  National Institute for Health Care Management Research and Education Foundation, “Prescription Drug Expenditures in 2001: Another Year of Escalating Costs” (rev. May 6, 2002), p. 6; http://www.nihcm.org (June 11, 2002).

10.  National Institute for Health Care Management Research and Education Foundation, “Prescription Drugs and Mass Media Advertising” (Nov. 2001), p. 2; http://www.nihcm.org (June 11, 2002). Senator Tim Johnson, supra.

11.  National Institute for Health Care Management Research and Education Foundation, “Prescription Drugs and Mass Media Advertising” (Nov. 2001), p. 2; http://www.nihcm.org (June 11, 2002).

12.  See, e.g., Public Citizen Congress Watch, “New Hampshire Consumers Pay More for Prescription Drugs While Pharmaceutical Profits Soar” (“seniors are being charged retail prices more than double”), http://www.citizen.org/congress/reform/state_rx_price/articles.cfm?ID=814 (June 11, 2002).

13.  Senior Citizens League, “Pharmaceutical Manufacturers Top Lobbying Spending” http://www.tscl.org/NewContent/100049.asp (June 11, 2002), and “Legislative Update: How Long Will We Allow Drug Manufacturers To Write Our Laws” http://www.tscl.org/NewContent/100051.asp (June 11, 2002); Senator Tim Johnson, supra.

14.  Senior Citizens League, “Pharmaceutical Companies Pay Lowest Tax Rate of Any Industry” http://www.tscl.org/NewContent/100048.asp (June 11, 2002).

15.   See n. 11, supra.