DC City Council to Regulate Drug Prices

Published June 1, 2005

On May 3, the District of Columbia City Council unanimously passed a measure that would make it an illegal trade practice to charge too much for prescription drugs.

The measure, known as the “Prescription Drug Compulsory Manufacture License Act of 2005,” is described in the legislation as a “compulsory license to remedy excessive pricing of prescription drugs.”

The bill was sponsored by DC Councilman David Catania (I-At Large) who noted on his council Web site, “Big drug companies are pricing our residents out of the market for potentially lifesaving pharmaceuticals. As a result, this government has no choice but to step in and address the predatory practices of the pharmaceutical industry.”

The legislation authorizes the city council to decide “the extent to which past sales have more than adequately compensated the producer for all costs of research and development, including risk factors, cost of capital, and a reasonable profit margin.”

“Proceeding in Wrong Direction”

Opponents of the measure argue Catania is proceeding in the wrong direction.

“Do some lower-income people have trouble buying the drugs they need? Yes, which is why [drug] firms … give away and discount drugs for millions of people at home and abroad,” wrote Doug Bandow, senior fellow for the Cato Institute, in a March 23, 2005 Washington Times oped.

“If Mr. Catania really wants to help people who still aren’t receiving lifesaving medications, he should propose a targeted assistance program,” Bandow wrote.

Other Countries’ Prices Compared

The question of whether drugs are sold at an excessive price, according to the bill, could be determined by “the disparity between the retail or wholesale price of the prescription drug and the value of the product measured by the price that the same product is sold [sic] in Europe, Canada, Australia, and other high-income countries.”

If domestic drugs are found to be more expensive than their foreign versions, D.C. consumers could sue for being overcharged, or the drug company could be forced to allow the district to license its product to a different manufacturer.

“The District of Columbia is considering a misguided policy that would allow politicians to effectively seize the intellectual property rights of drug companies to satisfy their short-term political agenda,” said Grace-Marie Turner, founder and president of the Galen Institute.

“This is one of the most extreme examples in a long list of bad policy ideas being considered at all levels of government regarding pharmaceutical pricing,” Turner continued. “Drug companies invest hundreds of millions of dollars creating new drugs–drugs that keep people alive, active, and well–and the district’s plan would undermine their research efforts by seizing the rights to their property.

“If this measure were to pass, it’s not hard to anticipate the result,” said Turner. “Fewer new drugs and fewer treatments or even cures for cancer, Parkinson’s, Alzheimer’s, and the other killer diseases.”

“Unfortunately,” concurs Bandow, writing on Townhall.com on May 2, 2005, “new medicines don’t magically appear on the ground every morning like manna from heaven. The U.S. pharmaceutical and biotech industry spends about $50 billion annually on R&D. Failures far outnumber successes. Often several firms spend millions or billions of dollars seeking remedies to the same diseases but only one company succeeds. Sometimes none do.”

Mayor Has Questions

Only one of every 5,000 to 10,000 substances developed by pharmaceutical companies makes it to market, Bandow reports, and fewer than one in three of those that make it earn enough to cover their own development costs.

Citing a study by the Institute for Policy Innovation, Bandow notes estimated drug development expenses have been rising sharply, going “from slightly over $100 million per successful drug in the 1980s to about $800 million in 2003. … FDA[-required] drug development costs continue to increase in response to a growing demand for more clinical information and more clinical trial data.”

Legal advisors to D.C. Mayor Anthony A. Williams have questions about the breadth and scope of the measure as passed.

The rules of the D.C. council require three readings and three votes, so the bill will return to the council for a second vote in July.

Susan Konig ([email protected]) is managing editor of Health Care News.