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Testimony Before House Majority Policy Committee Hearing
Sub-Committee on Prescription Drugs (PACE/PACENET)
Michael D. Miller, MD
Representing The Pharmaceutical
Research and Manufacturers of America (PhRMA)
July 16, 2002
Mr. Chairman and Members of the Committee, I am pleased to be here with
you today to share some of my thoughts concerning how the pharmaceutical
industry contributes to the economic development and prosperity of the
Commonwealth of Pennsylvania.
By way of introduction, I am a physician who has held several health
and budget-related positions at the federal level, including at the
National Institutes of Health. I have also worked for a
pharmaceutical company. During the past two and a half years, I have been
a health policy and communications consultant focusing on the quality of
health care and the development and use of new medical treatments.
In this capacity, I have participated in more than 40 meetings across the
country discussing how to improve our health care system and the role of
the pharmaceutical industry in that system and in our society.
Several of these meetings were here in Pennsylvania. I serve as a
consultant to the Pharmaceutical Research and Manufactures of America, and
I am here today representing them.
The Big Picture
In thinking about the role of the
research-based pharmaceutical industry, it is important to take a look at
the big picture that includes the industry’s role in improving the quality
of our health care and its role in promoting economic prosperity. An
understanding of both clinical and economic contributions is critical to
appreciating how the pharmaceutical industry benefits society. To
achieve desired clinical and economic outcomes—which are really the
“bottom line” —usually requires balancing competing interests and resource
obligations. Assessments or analyses that do not consider both
clinical and economic factors are generally flawed because they lack
balance and suffer from narrowness in scope, and they will eventually lead
to undesired outcomes.
I note here that while it is generally recognized that pharmaceutical
innovation has done much to improve health care and contribute to the
economy, its value has recently been questioned. It appears that
this criticism is driven by a narrow economic focus on pharmaceutical
costs rather than with a broad big picture view that balances clinical
results and overall health care economics.
A big picture perspective also includes the evolving nature of
biomedical research and development—specifically, that development of new
medical treatments is based upon the accumulation of knowledge about
diseases and their treatments and that innovations occur in step-wise
fashion. The medicines that physicians value most, for example, have
changed dramatically over the last century. Ether, alcohol, and mercury in
1910, gave way to penicillin and insulin in 1945, and to what is surely a
very different “top 10” list today.1
Sometimes medical innovations are small steps. Sometimes they are
large steps. We need to keep in mind, however, that the size of the
step, or the clinical or economic value of the innovation, can almost
never be fully predicted before the new treatment is completely
developed. And the value of these innovations is also patient
dependent. For example, a new treatment for diabetes can be of
tremendous value to a diabetic, but it may be of little or no direct value
to a non-diabetic suffering with arthritis.
The rest of my remarks focus primarily on:
- The role of the research-based pharmaceutical industry in promoting
economic development within Pennsylvania and the United States.
- Industry’s promotion of satellite business development.
- Economic and social implications of modern medicines in promoting
healthier and more productive workers and families.
- Industry’s synergistic interactions with other research-based health
care entities, and with health centers and universities across
Pennsylvania.
The Pharmaceutical Industry in
Pennsylvania: Jobs and People
The research-based
pharmaceutical industry in Pennsylvania is a vibrant and growing part of
the Commonwealth’s economic and jobs base. In 2000, Pennsylvania
ranked second nationally in pharmaceutical company employment with more
than 47,000 workers—almost 20% of the pharmaceutical industry’s U.S.
workforce, and an increase of approximately 275% since 1985.
Pennsylvania’s pharmaceutical employees earned a payroll that topped $3
billion, which was a 433% increase over 1985 levels. The growing
base of jobs and paychecks resulted in the payment of $750 million in
Pennsylvania taxes and provided other Pennsylvania companies with $2.3
billion in revenues.
Across the country, the industry also recognizes that its
products—modern, innovative pharmaceuticals—are important to peoples’
lives and well being. Research-based pharmaceutical companies invest
an average of $500 million to $800 million and 10 to15 years for each new
medicine that FDA approves, and pharmaceutical companies want
patients—including those who cannot afford the medicines that their
physicians prescribe—to receive the benefits of the new medicines.
Over a decade ago, pharmaceutical companies started to formalize their
informal efforts to provide free medicines to patients who cannot afford
them. In 2001, these programs, generally called “Patient Assistance
Programs,” provided almost 10 million prescriptions with a wholesale value
of about $1.5 billion to more than 3.5 million patients. More
recently, several companies created additional programs to offer
card-based discounts to low-income Medicare beneficiaries for their
prescription medicines. These efforts respond to a societal
need. They are clearly improvements, but because of the structure of
our health system, they are not fully integrated long-term
solutions.
In many ways, the activities of individual pharmaceutical companies are
similar to the actions that the Commonwealth of Pennsylvania took in
creating PACE and then expanding it with PACENET. The goal of all
these efforts is to find viable ways to improve our health care
system—through both short-term steps to address immediate problems and
gaps, and structural reforms of health insurance programs such as Medicare
and Medicaid. The challenge is to see that the short-term measures
support the development and implementation of structural reforms, not
impede them, and to ensure that the structural reforms make sense and will
provide desired long-term clinical and economic outcomes.
How the pharmaceutical industry and the Commonwealth have both taken
steps to provide better access to pharmaceuticals is an example of how
each is like a link in a chain or a gear in a larger machine. I find
this type of imagery useful in thinking about the organizations that form
our entire healthcare system, and what actions and reactions may occur in
response to proposals for addressing healthcare issues and concerns.
Figure 1 illustrates these types of relationships.
The Pharmaceutical Industry in Pennsylvania: Satellite
Industries
Successful companies employ increasing numbers of
people. At the same time, they promote satellite industries that, in
turn, grow and employ more people. In the pharmaceutical industry,
satellite companies are involved in a wide variety of activities—from
maintenance and other general business services to specialized technical
research and manufacturing processes such as clinical research services
and the production of sophisticated labels and brochures. As stated
above, in Pennsylvania the pharmaceutical industry was responsible for an
estimated $2.3 billion in revenues to satellite companies in 2000.
Pharmaceutical industry jobs, those directly within pharmaceutical
companies and those in satellite organizations, are precisely the kind of
jobs that are the driving force of U.S. economic growth and societal
prosperity—well-paying, high-skilled jobs that promote education and
community development. This is why many communities around the country
seek new pharmaceutical companies or expansion of existing companies in
their areas. Many industries can claim to produce such jobs, but the
pharmaceutical industry also creates a product—modern medicines—that
improves the quality of life and that can increase the ability of people
to contribute to the economic productivity of their communities.
Examples of these modern medicines are innovative anti-depressant
medicines, less toxic anti-cancer treatments, new non-sedating
antihistamines, and the new generation of migraine medicines.
The Pharmaceutical Industry in Pennsylvania: Healthier People and
More Productive Workers
Many pages can and have been written about
the clinical and economic value of new medicines, as well as the value of
the knowledge about diseases that has been created during development of
new medicines. The U.S. Department of Health and Human Services last
week released a study that reviews much of the literature about the value
of modern innovative pharmaceuticals in improving the quality of life for
Americans—from arthritis, asthma, and Alzheimer’s to cancer, cardiac
diseases, osteoporosis, and diabetes.2
These pharmaceuticals help workers in two ways. First, by directly
improving health and day-to-day functioning, modern medicines help
employees to be more productive. Second, by improving health and
day-to-day functioning of the employee’s family members—spouses, children,
and aging parents—modern medicines enable employees to focus more on their
day-time work activities and allow them to spend their non-work time with
healthier, happier, and more active family members.
Two examples of how modern medicines achieve these results are the
non-sedating antihistamines and improved treatments for congestive heart
failure:
- An analysis of allergy treatments found that spending an extra
dollar on non-sedating antihistamines resulted in $2 to $4 in savings
through increased employee productivity and reduced absenteeism.3
- A 1996 study of nearly 2000 patients with congestive heart failure
in a managed health care plan found that by intensively managing their
care, the patients’ hospital costs declined 78%. Their outpatient
prescription drug costs rose by 60% (almost $250 million), but the net
savings totaled $9.3 million for the patients over the course of a
year. In addition, the patients’ ability to perform activities of
daily living increased by 15%, while their mortality rate was only 10%
compared to an expected 25%. These are very interesting economic
and clinical outcomes, particularly in light of the fact that according
to a recent Washington Post article, Medicare pays more for the
diagnosis and treatment of heart failure than any other medical
diagnosis—in 2001, Medicare reportedly spent $3.6 billion on
hospitalizations for congestive heart failure patients, and 5% of all
U.S. spending on health went to treat congestive heart failure.4
The Pharmaceutical Industry in Pennsylvania: Links With Other
Health Researchers and With Health Centers and Universities
The research-based pharmaceutical industry is the single largest
funding source for biomedical research in the United States. In
2001, industry spent $30.3 billion on research and development, while
funding from the National Institutes of Health was $20.3 billion.
Additional funding sources include other components of the federal
government, state governments, private equity/venture capital sources, and
charitable organizations.
Two features about these funding sources are worth a special
mention. First, they play complementary roles in funding the
discovery of new biomedical knowledge and the development of improved
treatments for diseases, as illustrated in Figure 2. Second, the
researchers often receive funding from multiple sources. For
example, approximately 80% of National Institutes of Health funding goes
to non-governmental researchers—primarily at universities and academic
medical centers. Similarly, a large portion of industry research and
development funding goes to both basic research at universities and
clinical development at medical centers in Pennsylvania and across the
country. Biotechnology companies benefit from government-funded
research activities, collaborations with pharmaceutical companies, and
assistance from equity and venture capital
sources.
Aside from the financial links among those involved with biomedical
research and pharmaceutical development, there are great opportunities for
intellectual exchanges. By working together, researchers from
pharmaceutical companies, universities, academic medical centers, and
biotechnology companies can combine their intellectual resources to combat
serious illnesses and conditions.
This type of collaboration can most easily occur where there is
geographic proximity, and that is why Pennsylvania is a leader in this
arena. The Commonwealth already has leading representatives from
pharmaceutical companies, universities, academic medical centers, and
biotechnology companies. And as I’m sure you are aware, serious
discussions in Harrisburg and around the Commonwealth have focused on the
development of biotechnology centers, or “greenhouses,” to catalyze more
biomedical research and development activity.
What’s Next?
Over the past 10 to 20 years, pharmaceuticals
have become a more important part of health care, and as patients and
providers increasingly look to pharmaceuticals as their preferred
treatment option, a growing percentage of health care spending goes to
pharmaceuticals. The pharmaceutical industry has responded to these
changes in health care with a variety of initiatives to help low-income
individuals obtain the medicines they need, and the industry continues to
invest billions of dollars in research to discover and develop new
medicines for diseases that today lack adequate therapies.
A major challenge for those in the public and private sectors who
oversee the delivery and financing of health care services is integrating
all components of the health care delivery system into their management
decisions. It is much easier to manage each component—and its
budget—separately rather than to take a comprehensive approach. But
such component management creates barriers that make it more difficult to
realize the benefits of new innovations, such as new pharmaceuticals and
disease management programs. In addition, it should be recognized
that these management and payment decisions influence investments into the
development of future innovations.
I end with emphasis on the role that the Commonwealth of Pennsylvania
can play in meeting challenges in this area. Pennsylvania has well
seen the benefits of the pharmaceutical industry—through the creation of
jobs within pharmaceutical companies and satellite organizations and
through the promotion of a healthier and more productive population.
Already a leader in biomedical research and development, Pennsylvania
should work carefully to manage its financial, government/regulatory, and
business resources in such a way as to maximize potential benefits from
continued growth of the research-based pharmaceutical industry. The
Commonwealth can and should continue to lead in this important arena.
Footnotes:
- Journal of the American Medical Association, 274 No. 6 p. 456,
August 9, 1995.
- “Securing the Benefits of Medical Innovation for Seniors: The
Role of Prescription Drugs and Drug Coverage,” U.S. Department of Health
and Human Services, Office of the Assistant Secretary for Planning and
Evaluation, July 2002.
- “A Closer Look at Allergies,” A joint Project between the Asthma and
Allergy Foundation of America, and the National Pharmaceutical
Council.
- “Heart Success & Failure: As More People Survive Heart Attacks
and Heart Disease, They Live to Develop Heart Failure. It’s
Progress – of Sorts,” Brian Reid, The Washington Post, June 18, 2002.
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