The Power of PhRMA

Along the border between Mexico and the United States by the Pacific Ocean, San Diego (USA) is on the north side and Tijuana (MEX) is on the south side.  How do these two cities compare with each other?  They are about the same in terms of population size.  But Tijuana has about 1,600 pharmacies while San Diego has about 400 pharmacies.  Furthermore, someone crossing over from San Diego to Tijuana will immediately encounter the concentration of pharmacies known as Pharmacy Row.  What gives?

The following story was reported in the Los Angeles Times on September 5, 2004:

To the south, thousands of Americans, mostly senior citizens, cross the border daily to buy prescription drugs at places such as Tijuana and Algodones on the California border, Nogales south of Arizona and Ciudad Juarez opposite El Paso. They are pursuing savings of up to 75% on medicines ranging from antibiotics and antidepressants to heart medication and chemotherapy agents.  ...

Alfonso Gonzalez, a San Diego retiree, drives to Tijuana every month to buy eyedrops for his glaucoma. He pays $20 for the same monthly supply of drops that in San Diego costs $90. That's a considerable savings for 70-year-old Gonzalez and his wife, who subsist on the $1,100 a month they receive in Social Security benefits.  "We retirees are the ones who suffer the most because the drug business is so controlled in the United States. It's why you never see a price reduction," said Gonzalez, who said that Medicare did not cover the cost of his drops, which he said were vital in keeping his eyesight.  He said the Tijuana pharmacy he patronized sold him his drops without a prescription.

The situation of the price arbitrage is documented in this earlier New York Times story on July 22, 2003:

Last year, average drug prices in the United States were 67 percent higher than those in Canada and about twice those of Italy and France, according to a report by the Patented Medicine Prices Review Board, a Canadian health agency. The United States spends 1.6 percent of its gross domestic product on drugs, compared with 0.6 percent in Germany and 0.9 percent in Canada, according to the report. The drug industry now gets more than half of its worldwide revenues from American consumers.

The high prices drove low-income Americans to make shopping trips south of the border.  This led to a proposed Congressional bill to ease imports of less expensive drugs already sold in the United States.  Do the pharmaceutical companies have sympathy for the beleaguered consumers?  The same New York Times article reports:

Pfizer , one of the nation's largest drug companies, took out a full-page advertisement in Roll Call, a Capitol Hill newspaper, to publish a letter from its chief executive, Hank McKinnell, who says the proposal threatens the safety of the nation's drug supply.  "The F.D.A. would no longer be able to make sure that medications are stored and shipped safely," Mr. McKinnell wrote.

This is no way to make friends with the people.

We will now cite some survey data on the attitudes of Americans towards the pharmaceutical companies.  The data source is the MARS OTC/DTC Pharmaceutical Study.  This is a syndicated study of American adults that is fielded once every year since 2001.  In 2001, there were 23,705 respondents; in 2002, there were 22,097 respondents; in 2003, there were 21,106 respondents; and in 2004, there were 21,054 respondents.  So this is a large sample study that uses the identical methodology over time.  Within the MARS study, the respondents are shown a statement: "Without stricter regulation, drug companies would become dangerous to the American public."  In the chart below, we show the agreement/disagreement rates with this statement.  Without doubt, about half the population agree that with this statement either a lot or somewhat, and this has been consistent over time.  Conversely, only about 10% of the population would disagree with this statement.  

Given that the United States is a democracy, will there be stricter regulations as the will of the people seem to consistently prefer?  Not like at all.  The same New York Times article reports:

Drug manufacturers are among the biggest contributors to political campaigns; during the 2002 election cycle, the industry gave nearly $27 million to political candidates, three-quarters of it to Republicans. 

The pharmaceutical companies also have a tremendous lobbying presence in Washington DC.  According to this May 31, 2003 article in the New York Times:

Lobbyists for the drug industry are stepping up spending to influence Congress, the states and even foreign governments as the debate intensifies over how to provide prescription drug benefits to the elderly, industry executives say.  Confidential budget documents from the leading pharmaceutical trade group show that it will spend millions of dollars lobbying Congress and state legislatures, fighting price controls around the world, subsidizing "like-minded organizations" and paying economists to produce op-ed articles and monographs in response to critics.  The industry is worried that price controls and other regulations will tie the drug makers' hands as state, federal and foreign governments try to expand access to affordable drugs.

The documents show that the trade association, the Pharmaceutical Research and Manufacturers of America, known as PhRMA, will spend at least $150 million in the coming year.  That represents an increase of 23 percent over this year's budget of $121.7 million.  The pharmaceutical association gets nearly all its revenue from dues paid by member companies, according to the documents, which were obtained from people in the industry. Dues will total $143.8 million in the coming year, an increase of 24 percent, or $28.3 million, over this year's dues, the documents show.  

In its budget for the fiscal year that begins on July 1, the pharmaceutical lobby earmarks $72.7 million for advocacy at the federal level, directed mainly at Congress; $4.9 million to lobby the Food and Drug Administration; and $48.7 million for advocacy at the state level.  The drug trade group plans to spend $1 million for an "intellectual echo chamber of economists - a standing network of economists and thought leaders to speak against federal price control regulations through articles and testimony, and to serve as a rapid response team."  In addition, the budget sets aside $17.5 million to fight price controls and protect patent rights in foreign countries and in trade negotiations.  The PhRMA budget allocates $1 million "to change the Canadian health care system" and $450,000 to stem the flow of low-price prescription drugs from online pharmacies in Canada to customers in the United States.

The trade association and its tactics have become an issue. In debate on the Senate floor last summer, Senator Richard J. Durbin, Democrat of Illinois, said, "PhRMA, this lobby, has a death grip on Congress."  Senator Charles E. Schumer, Democrat of New York, said the drug industry made wonderful products, but was becoming "despised and hated" because of its aggressive efforts to keep prices and profits high.  But Senator Orrin G. Hatch, Republican of Utah, defended the trade group, saying it had been vilifed as a "satanic" force, "a bunch of greedy, money-grubbing companies." In fact, he said, drug makers do more than any other industry to help people.

(posted by Roland Soong, 9/20/2004)

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