Merck CEO Government Boards and Price Controls Threaten Medical Progress

In a recent editorial in the Wall Street Journal, Kenneth C. Fraizer, President and CEO of Merck & Co. asserted that, “government boards and drug price controls threaten to throw sand in the gears of medical progress.”

Fraizer recognized how life-science companies today are among America’s premier innovators, with six of the top 10 companies in global research and development expenditures being biopharmaceutical, according to a 2010 report by Booz & Co. This innovation is what drives millions of jobs and tax dollars in America. For example, Merck has over 40,000 people on its payroll in the U.S.  And these high-quality jobs in biopharmaceutical research are skilled and labor-intensive, with an average salary of more than $95,000.

Moreover, American drug companies reinvest more than 20% of their U.S. sales revenues in research. As recently as 2008, more than 67% of all U.S. biopharmaceutical patents were issued to U.S.-based life-science companies. In addition, almost two-thirds of research on new medicines approved in the last 10 years was performed in this country.

Today, the U.S. accounts for 82% of the biotechnology research and development in the world and has over 2,900 medicines in the pipeline. In addition, U.S. biopharmaceutical exports rose to $46 billion in 2009 from $29 billion in 2005.

He also pointed out how the biopharmaceutical industry’s scientists have produced a global revolution in health care. Medicines and vaccines created and produced by Merck treat patients in more than 140 countries. Among these are Victrelis, approved by the Food and Drug Administration this year as the first new drug in a decade to treat Hepatitis C; and Isentress, which has helped change HIV from a certain killer to a manageable chronic disease.

America and Innovation

Consequently, the Merck CEO noted how many Americans “generally agree that our economic future depends on nurturing new ideas.” In fact, he pointed to President Obama’s 2011 State of the Union speech, in which the President said that, “the first step in winning the future … is encouraging American innovation.”

However, Fraizer pointed out that, “the life sciences are largely absent from most discussions about encouraging innovation, while the extensive research and development that stands behind each new vaccine or medicine is invisible to all but a few.” Most Americans have no clue about the extraordinary scientific innovation and huge R&D investment embodied in the small pill or capsule their doctors prescribe.

Moreover, “the actions of the administration and the proposals of some in Congress may significantly impede innovation in the biopharmaceuticals industry for the foreseeable future.” Fraizer noted that, “American leadership in pharmaceuticals and biotechnology is now threatened,” which also means the future health of Americans is threatened.

The loss of patent protection for older medicines, the imposition of artificial controls on prices and reimbursements in the U.S. and abroad, and the increased difficulty and cost of medical research breakthroughs has dimmed the prospects for companies large and small. Our complex discovery process comes with high costs and failure rates. In response, U.S. companies are consolidating and contracting, costing the U.S. an estimated 200,000 jobs since 2006 and more than 300,000 since 2000.

Threats to US Innovation

Consequently, Fraizer asserted that, “there are two big public-policy threats on the horizon for Merck and the biopharmaceutical industry.”

First, the Independent Payment Advisory Board, or IPAB, which originated in last year’s health-reform law. This board has the power to reduce Medicare payments for innovative products simply because overall Medicare costs exceed certain budget targets in any one year. This effort is inherently designed to focus on reducing short-term costs at the expense of long-term investments.

The other harmful proposal on Washington’s agenda would impose price controls for the first time on the Medicare Part D prescription-drug program. This successful program has allowed nearly 30 million seniors to have comprehensive drug coverage at a cost that is nearly 50% below initial projections. Frazier asserted that, “it makes no sense to overlay—as would bills proposed by Rep. Henry Waxman (D., Calif.) and Sen. Jay Rockefeller (D., W.Va.)—a price control onto a program that is already delivering high value at lower-than-projected costs.”

Consequently, the Merck CEO maintained that, the IPAB and the proposed Medicare price controls “will dampen incentives for innovation and job-creation, ultimately reducing access to life-saving and cost-saving treatments.” He pointed to a report from the Battelle Memorial Institute, which estimates that the kind of Medicare Part D policy now being considered in Congress could kill 130,000 or more U.S. jobs in and around the pharmaceutical industry.

Discussion

Accordingly, “rather than choke innovation,” Fraizer asserted that, “policy makers must find savings by readjusting existing incentives to use services and technologies that have little benefit and, in some cases, cause harm.” According to Medicare data published last month, for example, hospitals perform expensive double CT scans on 5.4% of patients, increasing costs and exposing patients to additional radiation.

Additionally, Fraizer recommended that, “policy makers focus, as does the new health-reform law, on creating positive incentives to prevent and treat diseases.” He noted how future medicines can reduce the costliness and pain of diseases such as Alzheimer’s and cancer, for which there are many promising research leads. One study by the Alzheimer’s Association found that the development of a new treatment that delays the onset of Alzheimer’s could reduce Medicare and Medicaid spending on patients with Alzheimer’s by more than $100 billion annually by 2030.

As with other companies in the industry, Fraizer acknowledged Merck’s mission—to “discover, develop and provide innovative products and services that save and improve lives around the world—can play a critical role in meeting America’s economic goals.”

He noted that, “the investment decisions Merck makes today will pay off in new cures a decade or more from now. Similarly, the fiscal decisions our nation makes today will profoundly influence the innovation investment that will help decide the economic and personal well-being of our children and grandchildren.”