Securing the Benefits of Medical Innovation for Seniors: The Role of Prescription Drugs and Drug Coverage. Access to Medical Innovation


Before a new drug can be marketed, it must pass rigorous regulatory scrutiny. The purpose of the regulatory process is, correctly, to ensure that marketed drugs are safe and efficacious for patients. Most countries have a governmental body that is charged with approving and regulating new drugs. Regulators in different countries have an impact on the development and testing of drugs, advertising, and, in some cases, the pricing and delivery of products (see below). (USITC 2000) Regulatory requirements can expedite and facilitate or, conversely, prevent or delay a drug’s introduction into the marketplace. Delays in marketing will deprive individuals from receiving new drugs, which may impact both longevity and quality of life. Moreover, if a nation’s regulatory process is too restrictive, a pharmaceutical company may decide to forgo seeking approval for its drug in that country completely.

Efforts to expedite the drug review process have allowed patients more timely access to new pharmaceuticals. For example, dramatic improvements in efficiency of FDA pre-market review, following the 1992 enactment and reauthorization of the Prescription Drug User Fee Act (PDUFA), have cut review time in half. With a “priority” review process, thousands of cancer patients in the U.S. have had earlier access to new cancer treatments. This in turn has extended many cancer patients’ lives, or improved their quality of life. For example, a new biologic for the treatment of breast cancer (Herceptin®/trastuzumab) was approved by the FDA in less than five months. This drug took 18 months to be approved in Europe. An estimated additional 10,000 American women with advanced breast cancer received this new treatment as a result of the timely review process. This added an estimated 2,300 years of life to the population who had access to this new treatment following its market approval in May 1998.

With other new treatments, an expedited review process has helped thousands of patients to avoid significant sickness and hospitalization. For example, a six-month review and approval of a new treatment for osteoporosis (Fosamax®/alendronate sodium) is estimated to have allowed thousands of women earlier access to this treatment, preventing as many as 3,000 hip and wrist fractures. The accompanying shift in worldwide drug research and development investments toward the U.S. has prompted the European authority to consider emulating the FDA’s process, including a “priority” review for important new drugs.

Recently, the European Commission (EC) recognized the deleterious effects of delays brought on by bureaucratic drug restrictions. An EC advisory panel noted that “[t]he [pharmaceutical] price negotiating systems and reimbursement structures in a number of Member States can lead to significant delays. This is not only a problem within those Member States, but it can also result in citizens of one Member State having access to medicines months, or even years, in advance of those in other Member States.” (European Commission, 2002) One study of the European drug market found that for 22 breakthrough drugs (new molecular entities, or NMEs), it could take up to four years between the time the drug was first available anywhere in Europe and the time it was available in all the countries studied. The average delay was over two years. (Europe Economics 2000)

Cost containment efforts may reduce or delay access to specific drugs. In contrast to the U.S., where individuals generally may obtain any approved product on the market, in other countries, governmental policy may limit the use of a drug to specified categories of patients or restrict its use entirely. Even when a drug is widely available, government cost-containment programs may result in an increased likelihood that older, lower-cost products will be prescribed rather than newer, more innovative products. (USITC 2000) Although generic alternatives may work just as well and may be cost saving, health care providers rather than government officials should retain the decision-making authority regarding the best treatment option for individual patients.

Many countries attempt to control public expenditures for drugs by allowing the government to influence drug pricing and coverage decisions directly. In fact, the U.S. is the only major industrialized country that does not impose some general form of government controls on insurance coverage of prescription drugs. (Calfee 2000) Approaches used by various countries include direct and indirect price controls, profit controls, reference pricing, physician budget constraints, and copayment programs. (USITC 2000) The governments enforce these controls through their ability to influence which drugs are covered for all or most of their citizens—an authority that the U.S. government has never generally had. Thus, foreign governments have the authority to restrict coverage of certain drugs to limit pharmaceutical expenditures, even when drugs prove cost-effective over other treatment options. (USITC 2000; Lichtenberg 2001; Neumann 2000; Cutler 2001)

The desire of countries to control health spending is certainly understandable. Moreover, levels of U.S. prescription drug spending have unambiguously increased in recent years due to increases in both the number of prescriptions and prices. For most of the U.S. prescription drug market, rising costs have driven employers and insurers to adopt various market-based techniques of cost containment, largely free of government intervention. Techniques such as tiered formularies, step therapy, coinsurance rather than fixed copayments, and generic substitution—with appropriate regulatory mechanisms to ensure patient safety—have kept prescription drug coverage within the reach of most Americans. Most Americans with private insurance, or the employers and others purchasing insurance on their behalf, also have choices about coverage that are not available in the government-controlled health financing plans of other countries—so that if an insurance plan does not provide appropriate coverage for valuable treatments, individuals in the U.S. can go elsewhere for coverage. Drugs that the FDA has approved as safe and efficacious are widely available for sale when needed. At the same time, changes in U.S. drug purchasing and distribution have stimulated competition and, indirectly, encouraged innovation. (Gambardella 2001) Only 13 percent of the U.S. market is covered by Medicaid or other public programs that use direct government controls to limit costs. (USITC 2000)

Cost-containment approaches implemented by individual countries may have a significant impact on prescription drug innovation, especially in regard to essential research and development expenditures. (USITC 2000) Government controls on drug access and pricing may result in decreased revenues, which reduce monies available for research and development. (USITC 2000). As a result of reduced investment in research and development, innovation may be slowed, delaying the development and introduction of new drugs into the marketplace. Partially as a result of various administered pricing schemes, Europe seriously lags behind the U.S. in drug research, and the gap is widening. In 1990, major European research-based pharmaceutical companies spent 73 percent of their R&D budget in Europe. By 1999, they spent only 59 percent in Europe, moving most of it to the U.S. (Gambardella 2001) One recent report prepared for the European Commission found that:

“the decline of European competitiveness in pharmaceuticals is linked to the persistence of a fragmented market and, at the same time, to major ‘non-market’ and bureaucratic failures in public intervention and price regulation... [Governments should] converge on a higher reliance on innovative management methods and on competitive mechanisms, moving away from schemes excessively based on administrative decisions and bureaucratic structures/rules in the regulation of the market.” (Gambardella 2001)

Government controls on pharmaceuticals also inhibit research on new uses for current drugs. Fixed prices based on a government-calculated “efficacy” of an existing drug would necessarily fail to capture newly-identified benefits. Such drugs as statins for treating high cholesterol and tissue plasminogen activator for treating stroke found some of their most valuable uses through major clinical trials after the drugs had already been approved for other purposes. (Calfee 2000)

Finally, countries that have relied on centralized approaches to controlling drug costs have generally not adopted U.S.-led innovations in “disease management” and “case management” approaches to reduce drug costs. These programs provide assistance to the many physicians who may be involved in the care of a patient with chronic illnesses or multiple illnesses, to ensure that the patient is receiving the most effective treatments for their conditions. For example, the Evercare program is a specialized health plan for frail elderly patients and others with multiple disabilities. These patients generally reside in nursing homes, or have substantial functional impairments that necessitate nursing home levels of care. Because they usually have multiple chronic illnesses, managing their prescription drug needs effectively can be complex. Often, individual physicians do not even have a complete understanding of all the medications that have been prescribed for their patients by various specialists. The Evercare program has specialized nurse practitioners who help the many medical professionals involved in the care of a frail elderly patient coordinate that care effectively, and who help the patient and their family gain better control of the patient’s health needs. As a result, most patients in the Evercare program take up to eight prescriptions, whereas a typical nursing home resident takes 15 medications. Moreover, the program maintains a 95 percent satisfaction rate with families. Similar disease management programs that have been implemented by private insurance plans in Medicare help patients with diabetes, high blood pressure, heart failure, and other chronic illnesses reduce their medication needs and their medical complications.

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