A main message from pharmaceutical companies is that US policies that undermine investment in biopharmaceutical innovation will prompt manufacturers to shift R&D to more hospitable climes. The European Union's Innovative Medicines Initiative has earmarked $2 billion to fund collaborative research projects and build expert networks to support pharmaceutical innovation in Europe. The Chinese government is targeting the biopharmaceutical industry as part of a five-year economic development campaign, which includes providing $1.5 billion to invest in startup companies.At a press briefing in July 2011, John Castellani, president of the Pharmaceutical Research and Manufactures of America (PhRMA), explained how the biopharmaceutical industry has thrived in the US because of policies that protect intellectual property, support scientific research, and place a high value on medicines. Now, other countries, such as Germany and France, want to attract back biopharmaceutical firms, he warned. At the same time, Singapore and other emerging economies have identified the biopharmaceutical sector as crucial to their economies. Merck President Kenneth Frazier similarly observed in a Wall Street Journal op–ed in July, that the designation of the US as the "medicine chest to the world" and its claim to be home to 82% of the world's biotech R&D activity will be undermined if the federal government imposes price controls on the Medicare drug program and establishes the Independent Payment Advisory Board (IPAB) (1).
The price controls mentioned by Frazier refer to additional rebates on drugs covered by the Medicare Part D drug benefit, specifically those medicines consumed by low-income seniors who previously obtained medicines from state Medicaid programs that negotiate rebates with pharmaceutical manufacturers. The shift of those "dual eligibles" to Part D plans eliminated those rebates, and industry critics, led by Rep. Henry Waxman (D-CA), have been pressing to recoup this pharmaceutical "windfall" for several years.
The Congressional Budget Office (CBO) estimates that rebates on drugs for some 10 million seniors who receive low-income subsidies under Part D would save $112 billion over the next decade, or $10 billion a year. That's a big number that will be hard for budget-cutters to ignore.
PhRMA is fighting the rebate policy and other actions with analysis claiming that the policy could prompt biopharmaceutical companies to shift operations, and thus US jobs, overseas. A Battelle study for PhRMA calculates that a $10-billion reduction in on industry revenues would kill 130,000 high-paying jobs, thereby exacerbating the nation's already high unemployment rate.
Even more troubling are suggestions that the rebate plan could destabilize the Part D program which has been a huge success in providing less costly medicines to seniors. Another report for PhRMA by the IMS Institute for Healthcare Informatics documents how Part D has led to lower spending on medicines for seniors. More important, a separate study published in the Journal of the American Medical Association finds that increased use of prescription drugs due to the Medicare drug benefit significantly reduced medical spending by seniors on hospital and nursing home care (2). Medicare reports that the program's total cost is 41% less than initial CBO estimates, partly because plans have negotiated hefty discounts from manufacturers. Layering on another level of rebates, says PhRMA senior vice-president Rick Smith, would be "a double whammy."