Overbilled

On Tuesday, September 20, while pharmaceutical lobbyists in Washington were busy peddling influence in the halls of Congress, the Council of the District of Columbia was passing a groundbreaking law restricting drug-company pricing. By unanimous vote, the council declared that selling patented drugs at “excessive prices” was illegal. It defined “excessive” as anything more than 30 percent over the price of the same drug in Germany, Canada, Australia, or the United Kingdom. The law allows the D.C. government -- or any city resident -- to force a drug company to prove to a court that its development and marketing costs and profits justify U.S. prices way above those charged abroad.

The council's action is the most direct effort to date by a state or local government to force drug companies to prove that they are not price gouging.

While a firestorm is raging in the states and cities against high drug prices, most lawmakers have concentrated on purchasing strategies -- such as importing drugs from Canada, or banding together to buy in bulk -- to get lower prices. The District of Columbia, like so many states and towns, had linked consumers with Canadian Internet pharmacies.

But Councilman David Catania, who drafted the new law, rejected such limited solutions and decided to focus directly on pricing. Only a few states have laws addressing pricing, especially to consumers. The few that do are complex, difficult to implement, and are not explicit about what prices would be acceptable.

Catania believes the D.C. law slipped under the drug industry's radar because the industry is so focused on defeating a November ballot initiative in California that would prevent drug companies from “profiteering” on drug prices. It has spent tens of millions of dollars to block the measure. While passage of the initiative in a state as large as California might have more impact than action in D.C., the drug industry is not likely to allow this dangerous precedent to go unchallenged.

Washington Mayor Anthony Williams has indicated that he will sign the bill, but it still has to get the OK of congressional committees. The drug industry successfully rallied congressional opposition this past summer when Catania was moving another bill to lower drug prices through the council.

Usually the committees overseeing the district do not interfere in its home rule, even when the council passes laws they oppose. But the legislators heading D.C. oversight panels, Representative Tom Davis and Senator George Voinovich, warned Catania in June that they had serous concerns about his earlier proposal. That legislation would have taken away a company's right to manufacture a product if its price was too high and given manufacturing rights to another firm that agreed to sell more cheaply.

Catania decided to try the simpler approach of allowing lawsuits against “excessive pricing” on the basis that the council is authorized to protect the health and welfare of citizens and protect them against unfair trade practices.

But he expects that, “like the tobacco industry, the drug industry will insist on litigating this because it's cheaper to litigate than live with it.” A spokesman for the Pharmaceutical Research and Manufacturers of America (PhRMA) refused to say whether his organization will challenge the law in court or try to get Congress to reject it. Instead, spokesman Ken Johnson warned that linking prices to those in other nations would “stifle supply and smother innovation.” He added that the money from drug sales also goes to fund assistance programs for the poor, noting that 7,200 district residents were helped this year.

Limiting prices to no more than 30 percent above those in key industrial countries would have a significant impact on consumer bills. A study Catania's office did of U.S. prices for 15 of the 20 best-selling drugs -- including Lipitor, Zoloft, Nexium, Singulair, and Norvasc -- concluded that only two were not at least 30 percent above the average price in England, Australia, Germany, and Canada. Another study, published September 19 in the Annals of Internal Medicine, compared the prices of 44 of the most frequently bought drugs from Canadian Internet pharmacies with three U.S. online retailers (Walgreens, CVS, and Rite Aid). It concluded that many sell for almost 50-percent less in Canada. Buying from Canadian pharmacies meant a mean savings of 24 percent, concluded researchers, who added that this understated the savings: If Canadian Internet pharmacy sales were compared with local retail pharmacies in the United States, rather than U.S. online sales, the savings would be an additional 10 percent to 15 percent.

State legislators are closely watching what is happening in the District of Columbia, and Catania expects bills to be introduced soon in several states. He will discuss his legislation at the October meeting of the National Legislative Association on Prescription Drug Prices, comprising legislators from 10 states and the District of Columbia who meet to discuss strategies for lowering drug costs. Sharon Treat, executive director of the group and formerly Maine's Senate majority leader, says that she, too, has talked to many legislators, both in and outside of her group, and that there is a lot of interest. But, she notes, many will wait to see if PhRMA sues and what the courts do, which is why PhRMA is likely to go to court.

Still, having “50 states, D.C., and Guam pass separate legislation is not a long-term solution,” she admits. Congress must act. But with Congress in Republican hands, only strong state and local activity will force any attention on the Hill. Only because numerous states and cities, many controlled by Republicans, took steps to help consumers illegally import drugs from Canadian pharmacies has there been intense activity in congress to make this legal.

Perhaps the District of Columbia's law will eventually mean lower prices for its residents. In the meantime, Treat sees it as an important step in “pushing policy-makers in Washington.”

Barbara T. Dreyfuss is a freelance writer based in the Washington, D.C. area.

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