Tuesday, December 23, 2008

Rhoads: Message to PhRMA

Jared Rhoads, director of the Lucidus Project, has written the following message to the pharmaceutical industry group PhRMA (Pharmaceutical Research and Manufacturers of America). It is reposted here with his kind permission:
Message to PhRMA
by Jared M. Rhoads (November 30, 2008)

According to a recent article in the Washington Times, the nation's largest and most influential lobbying group for the pharmaceutical industry is preparing to launch a multi-million dollar public relations campaign to trumpet the benefits of the free market in healthcare. The intent of the campaign, confirmed by the Pharmaceutical Research and Manufacturers of America (PhRMA) group, is to preempt an expected push by the Obama administration for price controls on prescription drugs.[1]

The group's concern over the political desire for new controls is certainly justified. During the presidential campaign, Obama promised to "take on the drug and insurance companies and hold them accountable for the prices they charge and the harm they cause."[2] He also promised to "tell the pharmaceutical companies thanks, but no thanks, for the overpriced drugs." Central to these price reforms is a plan to allow the federal government to "negotiate" (i.e. dictate) for Medicare to pay lower prices for prescription drugs for its enrollees. Such a move would have major implications. After all, Medicare is not just any payer; it is the largest single payer of healthcare services in the United States. According to some estimates, the hit on revenues for pharmaceutical companies would be between $10 billion and $30 billion. That is about equivalent to wiping out the entire annual revenue of Merck, the third largest drugmaker in the U.S.

But does PhRMA really have the fortitude to run an effective ad campaign in support of free markets? In the past, the group has taken some pro-market stances on issues involving intellectual property rights, regulatory barriers, and e-pedigree requirements. But the group has also been a vocal supporter of government-supported research, post-market surveillance requirements, SCHIP expansion, and worst of all, the 2006 Medicare Prescription Drug Benefit -- the largest new entitlement program since the inception of Medicare in the 1960s. And if recent comments by PhRMA representatives are any indicator, then the group views the fight against price controls as more akin to "moving the pieces on the chess board" (i.e. manipulating members of Congress) than an opportunity to make a strong, philosophical case for free-market reforms.[3]

Setting aside some doubts, let us assume that PhRMA is in fact serious about defending the free market. How should it go about doing this? Here are three pieces of advice:

1) Don't allow opponents to claim that the market has failed. Seemingly every discourse on healthcare begins with a harangue about how Americans spend more on healthcare and allegedly get less, and how the U.S. is the only industrialized nation that does not provides universal healthcare to its citizens. As a result, many people are led to believe that the cause of our problems is too much privatization and not enough government. The reality is precisely the opposite: it is the policies, controls, and interventions of government that raise costs, divert investment capital, and thwart innovation. PhRMA's campaign needs to remind (or educate) the public that the pharmaceutical industry today is not a free market but a thoroughly hampered one, and that the only "change we can believe in" is change in the direction of a free market. The problem is not that markets have failed; markets haven't even been given a chance.

2) Name your principles. Proponents of price controls on prescription drugs can offer no rational objection to the argument that individuals have the right to produce and offer their products on whatever terms they wish. This is a fundamental point, and -- to paraphrase a famous fictional architect -- it has to be said. Unfortunately, in today's climate of pragmatism, principles do not get the respect they deserve. A principled, rights-based argument alone will not silence those who are pushing for price controls, so PhRMA should tout the practical and economic case for free markets as clearly as possible. But please, PhRMA: anchor your message in the principle of rights, and refer to it at every opportunity. Whether you know it or not, this is what will sustain your fight over the long run (if there is to be a long run).

3) Demonstrate some integrity. Don't ask for laissez-faire treatment one minute, and then demand increased subsidies, research grants, or bailouts the next. To be sure, a mixed economy is a funny thing; it is a system of contradictions. And in the midst of oppressive regulations, taxes, and fees, no organization reasonably can be blamed for exerting their influence in Washington as a matter of self-defense. But to the fullest extent possible, PhRMA should be willing to explore ideas that trade today's goodies for increased freedom. With an incoming administration that will be looking for ways to control spending in the current economic crisis, 2009 will be a favorable time for new ideas. For instance, the pharmaceutical industry could offer to negotiate a 50 percent reduction in its share of NIH extramural research grants in exchange for a 50 percent reduction in the time or paperwork required for drug approvals. Or the same, in exchange for the lifting of liability on developmental drugs. Or for the removal of restrictions on advertising. Yes, it is a shame that your industry must "buy back" its own freedom -- but that is one of the consequences of having failed to defend it properly in the first place. As for the forgone grant money, you won't miss it. Not when you realize the wealth of innovations and discoveries that your minds are capable of producing when left free to think.

As PhRMA begins to launch its campaign for the defense of free markets, advocates of laissez-faire will be watching -- and hoping -- for a confident and principled approach. If executed properly, it could be effective in stemming the tide of new price controls. If botched, it will be worse than offering no defense at all.


[1] Lengell, S. "Drugmaker ads to target Obama idea," Washington Times, November 14, 2008

[2] "Remarks in Newport News, Virginia" Barack Obama, October 4 2008. (This sentiment, by the way, was to a large extent shared by Obama's Republican opponent John McCain.)

[3] Lengell, November 14 2008