[Congressional Record (Bound Edition), Volume 145 (1999), Part 21]
[Extensions of Remarks]
[Pages 31242-31243]
[From the U.S. Government Publishing Office, www.gpo.gov]


[[Page 31242]]

PRESCRIPTION DRUG PRICING IN THE 20TH CONGRESSIONAL DISTRICT OF TEXAS: 
                   AN INTERNATIONAL PRICE COMPARISON

                                 ______
                                 

                        HON. CHARLES A. GONZALEZ

                                of texas

                    in the house of representatives

                      Thursday, November 18, 1999

  Mr. GONZALEZ. Mr. Speaker, I insert the following for the Record:

                           Executive Summary

       This report, which was prepared at the request of Rep. 
     Charles A. Gonzalez, compares prescription drug prices in 
     Texas's 20th Congressional District with drug prices in 
     Canada and Mexico. The report finds that senior citizens and 
     other consumers in Rep. Gonzalez's district who lack 
     insurance coverage for prescription drugs must pay far more 
     for prescription drugs than consumers in Canada and Mexico. 
     These price differentials are a form of price discrimination. 
     In effect, the drug manufacturers are discriminating against 
     senior citizens in Rep. Gonzalez's district by denying them 
     access to prescription drugs at the low prices available to 
     consumers in Canada and Mexico.
       This study investigates the pricing of the five brand name 
     prescription drugs with the highest dollar sales to the 
     elderly in the United States. The study compares the prices 
     that senior citizens who buy their own prescription drugs 
     must pay for these drugs in Rep. Gonzalez's district with the 
     prices that consumers who buy their own drugs must pay for 
     the same drugs in Canada or Mexico. The study finds that the 
     average prices that senior citizens in Rep. Gonzalez's 
     district must pay are 100% higher than the prices that 
     Canadian consumers pay and 99% higher than the prices that 
     Mexican consumers pay (Table 1).

         TABLE 1.--SENIORS IN REP. GONZALEZ'S DISTRICT PAY SIGNIFICANTLY HIGHER PRICES FOR PRESCRIPTION DRUGS THAN CONSUMERS IN CANADA OR MEXICO
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  Canada-20th District price  Mexico-20th District price
                                                          Canadian       Mexican        20th             differential                differential
           Prescription drug and dosage form                price         price       District   -------------------------------------------------------
                                                                                        price        Percent       Dollar        Percent       Dollar
--------------------------------------------------------------------------------------------------------------------------------------------------------
Zocor: 5 mg, 60 tab...................................        $46.17        $67.65       $113.94           147        $67.77            68        $46.29
Prilosec: 20 mg, 30 cap...............................         55.10         32.10        129.49           135         74.39           303         97.39
Procardia XL: 30 mg, 100 tab..........................         74.25         76.60        142.17            91         67.92            86         65.57
Zoloft: 50 mg, 100 tab................................        129.05        219.35        238.69            85        109.64             9         19.34
                                                       -------------------------------------------------------------------------------------------------
Norvasc: 5 mg, 90 tab.................................         89.91         99.32        127.77            42         37.86            29        28.45
    Average differential............................................100.........................
                                                                    99
--------------------------------------------------------------------------------------------------------------------------------------------------------

       These price differences can have substantial impacts on the 
     cost of a prescription. Prilosec, and ulcer medication 
     manufactured by Merck, was the top prescription drug in 
     dollar sales in the United States in 1998. An uninsured 
     senior citizen in Rep. Gonzalez's district must pay over $70 
     more than a consumer in Canada and nearly $100 more than a 
     consumer in Mexico for a one month supply of this drug. The 
     total difference between the price a senior in Rep. 
     Gonzalez's district would pay for a year's supply of Prilosec 
     compared to a similar consumer in Mexico is over $1,000. The 
     difference between the price a senior in Rep. Gonzalez's 
     district would pay for a year's supply of Prilosec compared 
     to a similar consumer in Canada is nearly $900.
       In the case of two additional drugs considered in the 
     study, Synthroid and Micronase, senior citizens in Rep. 
     Gonzalez's district were forced to pay more than two times, 
     and in one case over five times, the prices charged to 
     Canadian or Mexican consumers.
       This is the second congressional report on drug price 
     discrimination requested by Rep. Gonzalez. the first report 
     showed that senior citizens in Texas's 20th Congressional 
     District are forced to pay over twice as much for their 
     prescription drugs as the drug companies' favored domestic 
     customers, such as HMOs and the federal government. This 
     report shows that senior citizens in Rep. Gonzalez's district 
     are also forced to pay twice as much for their prescription 
     drugs than are consumers in other countries. Taken together, 
     the two studies indicate that drug manufacturers engage in a 
     consistent pattern of price discrimination, resulting in 
     prices for senior citizens and other consumers who buy their 
     own drugs that far exceed those paid by other purchasers in 
     the United States and other countries.


                            I. Introduction

       In the United States, drug manufacturers are allowed to 
     discriminate in drug pricing. As the Congressional Budget 
     Office reported in a 1998 study, ``[d]ifferent buyers pay 
     different prices for brand-name prescription drugs. . . . In 
     today's market for outpatient prescription drugs, purchasers 
     that have no insurance coverage for drugs, pay the highest 
     prices for brand name drugs.'' In 1999, the Federal Trade 
     Commission reached the same conclusion, reporting that drug 
     manufacturers use a ``two tiered pricing structure'' under 
     which they ``charge higher prices to the uninsured.''
       This discriminatory pricing imposes severe hardships on 
     senior citizens. As documented in the previous report 
     released by Rep. Gonzalez, senior citizens often have the 
     greatest need for prescription drugs, but the least ability 
     to pay for them. The elderly in the United States, who make 
     up 12% of the population, use one-third of all prescription 
     drugs, with the average senior using 18.5 prescriptions 
     annually. They also frequently have inadequate insurance 
     coverage or no insurance coverage at all to pay for these 
     drugs. Approximately 75% of Medicare beneficiaries lack 
     dependable, private-sector prescription drug coverage, and 
     35%--over 13 million seniors--do not have any insurance 
     coverage for prescription drugs. As a result, many seniors 
     cannot afford the high costs of prescription drugs. One study 
     estimated that more than one in eight seniors were forced to 
     choose between buying food or paying for prescription drugs.
       In part to protect their citizens from these hardships, the 
     governments of Canada and Mexico do not allow drug 
     manufacturers to engage in price discrimination. In Canada, 
     approximately 35% of prescription drugs are paid for by the 
     government for beneficiaries of government health care 
     programs. In Mexico, 30% of prescription drugs are paid for 
     by the government under similar circumstances. The rest of 
     the population in these two countries must either buy their 
     own drugs or obtain prescription drug insurance coverage. To 
     prevent drug companies from charging individual consumers 
     excessive prices, both the Canadian and Mexican governments 
     regulate prices for patented prescription drugs. Drug 
     manufacturers do not have to sell their products in Canada or 
     Mexico, but if they do, they cannot sell their drugs at 
     prices above the maximum prices established by the 
     government.
       This report is the first effort to compare prices that 
     senior citizens in Texas's 20th Congressional District must 
     pay for prescription drugs with the prices at which the same 
     drugs are available in Canada and Mexico. It finds that 
     senior citizens in Rep. Gonzalez's district who lack 
     prescription drug benefits must pay far more for prescription 
     drugs than consumers in Canada and Mexico. The drug companies 
     thus appear to engage in two distinct forms of price 
     discrimination: (1) as documented by Rep. Gonzalez's first 
     report, the drug companies are forcing senior citizens in 
     Rep. Gonzalez's district to pay more for prescription drugs 
     than more favored U.S. customers, and (2) as documented in 
     this report, the drug companies are forcing senior citizens 
     in Rep. Gonzalez's district to pay more for prescription 
     drugs than consumers in more favored countries.

                            II. Methodology

     A. Selection of Drugs for this Survey
       This survey is based primarily on a selection of the five 
     patented, nongeneric drugs with the highest annual sales to 
     Older Americans in 1997. The list was obtained from the 
     Pennsylvania Pharmaceutical Assistance Contract for the 
     Elderly (PACE). The PACE program is the largest out-patient 
     prescription drug program for older Americans in the United 
     States for which claims data is available. It is used in this 
     study,as well as by several other analysts, as a proxy 
     database for prescription drug usage by all older Americans. 
     In 1997, over 250,000 persons were enrolled in the program, 
     which provided over $100 million of assistance in filling 
     over 2.8 million prescriptions.
       Based on the PACE data, the five patented, nongeneric drugs 
     with the highest sales to seniors in 1997 were: Prilosec, an 
     ulcer and heartburn mediation manufactured by Astra/Merck; 
     Norvasc, a blood pressure medication manufactured by Pfizer; 
     Zocor, a cholesterol-reducing medication manufactured by 
     Merck; Zoloft, a medication used to treat depression 
     manufactured by Pfizer; and Procardia XL, a heart medication 
     manufactured by Pfizer.
       In addition to the top five drugs for seniors, this study 
     also analyzed two additional prescription drugs, Synthroid 
     and Micronase. Synthroid is a hormone treatment manufactured 
     by Knoll Pharmaceuticals, and Micronase is a diabetes 
     medication manufactured by Upjohn. These popular prescription 
     drugs were included in the study because the earlier analysis 
     indicated that there is substantial discrimination in the 
     pricing of these drugs.

[[Page 31243]]


     B. Determination of Average Retail Drug Prices in Texas' 20th 
         Congressional District
       In order to determine the prices that senior citizens are 
     paying for prescription drugs in Rep. Gonzalez's 
     congressional district, the minority staff and the staff of 
     Rep. Gonzalez's congressional office conducted a survey of 11 
     drug stores--including both independent and chain stores--in 
     his district. Rep. Gonzalez represents the 20th Congressional 
     District in southern Texas, which includes central San 
     Antonio and rural areas to the west and southwest of the 
     City.
     C. Determination of Average Drug Prices in Canada and Mexico
       Prices for prescription drugs in Canada and Mexico were 
     determined via a survey of pharmacies in Canada and Mexico. 
     At the request of the minority staff of the Committee on 
     Government Reform, the surveys were conducted by the Office 
     of NAFTA and Inter-American Affairs of the U.S. Department of 
     Commerce. In Canada, pharmacies were surveyed in three 
     provinces; Ontario, British Columbia, and Nova Scotia. In 
     Mexico, pharmacies were surveyed in Monterrey and 
     Guadalajara.
       Prices from Canadian pharmacies were determined in Canadian 
     dollars, and prices from Mexican pharmacies were determined 
     in pesos. All prices were converted to U.S. dollars using 
     commercially available exchange rates.
     D. Selection of Drug Dosage and Form
       In comparing drug prices, the study generally used the same 
     drug dosage, form, and package size used by the U.S. General 
     Accounting Office in its 1992 report, Prescription Drugs: 
     Companies Typically Charge More in the United States Than in 
     Canada. For drugs that were not included in the GAO report, 
     the study used the dosage, form, and package size common in 
     the years 1994 through 1997, as indicated in the Drug Topics 
     Red Book. The dosages, forms, and package sizes used in the 
     study are shown in Table 1.
       All prescription drugs surveyed in this report were 
     available in Canada in the same dosage and form as in the 
     United States. In Mexico, several drugs were not available in 
     the same dosage and form. In this case, prices of equivalent 
     quantities were used for the comparison. For example, in the 
     United States the drug Zocor is commonly available in 
     containers containing five mg. tablets, while in Mexico Zocor 
     is available only in containers containing ten mg. tablets. 
     To compare Zocor prices, this report compared the cost of 60 
     five mg. tablets of Zocor in the United States with the cost 
     of 30 ten mg. tablets in Mexico. Several drugs are also sold 
     under different names in Mexico. The Mexican equivalents of 
     U.S. brand names were determined using the 44th edition of 
     the Diccionario de Especialdades Farmaceuticas (1998).


                             III. Findings

     A. Senior Citizens in Texas's 20th Congressional District Pay 
         More for Prescription Drugs Than Consumers in Canada
       Consumers in Canada obtain prescription drugs in one of two 
     primary ways. Approximately 35% of the prescription drugs 
     sold in Canada are paid for by the provincial governments on 
     behalf of senior citizens, low-income individuals, and other 
     beneficiaries of government health care programs. The rest of 
     the population in Canada must either buy their own drugs or 
     obtain prescription drug insurance coverage.
       The regulatory system in Canada protects individual 
     consumers who buy their own drugs from price discrimination. 
     The Patent Medicine Prices Review Board (PMPRB), established 
     under the Ministry of Health by a 1098 law, regulates the 
     maximum prices at which manufacturers can sell patented 
     medicines. If the Board finds that the price of a patented 
     drug is excessive, it may order the manufacturer to lower the 
     price, and may also take measures to offset any revenues the 
     manufacturer has received from the excess pricing. Pharmacy 
     dispensing fees for individual retail customers are not 
     controlled by the government. Each pharmacy sets its unusual 
     and customary dispensing fee and must register this fee with 
     provincial authorities.
       This study indicates that the Canadian system producers 
     prescription drug prices that are substantially lower in 
     Canada than in Rep. Gonzalez's district than in Canada (Table 
     1).
       For all five drugs, prices were higher in Rep. Gonzalez's 
     district. For two drugs, Zocor and Prilosec, the prices in 
     Rep. Gonzalez's district were more than twice as high as the 
     Canadian prices. The highest price differential among the top 
     five drugs was 147%, for Zocor, a cholesterol medication 
     manufactured by Merck.
       For other drugs, price differentials were even higher. 
     Synthroid is a hormone treatment manufactured by Knoll 
     Pharmaceuticals. For this prescription drug, senior citizens 
     in Rep. Gonzalez's district must pay an average price of 
     $31.54, while consumers in Canada pay only $10.53--a price 
     differential of 200%. For Micronase, a diabetes drug 
     manufactured by Upjohn, senior citizens in Rep. Gonzalez's 
     district pay prices that are 306% higher than Canadian 
     consumers.
       Prilosec, the ulcer medication manufactured by Merck, was 
     the top prescription drug in dollar sales in the United 
     States in 1998. An uninsured senior citizen in Rep. 
     Gonzalez's district pays $74.39 more than consumers in Canada 
     for a one month supply of Prilosec--an annual price 
     difference of nearly $900. Similarly, a senior in Rep. 
     Gonzalez's district pays nearly $70 more than a senior in 
     Canada for a two month supply of Zocor, an annual difference 
     of over $400, and over $100 more than a senior in Canada for 
     a 100 day supply of Zoloft, an annual difference of nearly 
     $400.
       The findings in this report are consistent with the 
     findings of other analyses. In 1992, GAO looked at the prices 
     that drug companies charge wholesalers for prescription drugs 
     in the United States and Canada. The results of the GAO study 
     showed that, for the top five drugs in the United States, the 
     average differential between the price in the United States 
     and the price in Canada was 79%. According to GAO, 
     ``government regulations and reimbursement practices 
     contribute to lower average drug prices in Canada. In setting 
     prices, manufacturers of patented drugs must conform to 
     Canadian federal regulations that review prices for newly 
     released drugs and restrain price increases for existing 
     drugs.
       Similarly, in 1998, Canada's Patented Medicine Prices 
     Review Board performed a comprehensive review of prices in 
     Canada, the United States, and six European countries. The 
     Board found that prescription drug prices in the United 
     States were 56% higher than prices in Canada, and that prices 
     were even lower in other industrialized countries. Prices in 
     the United states were 96% higher than prices in Italy, 75% 
     higher than prices in France, 55% higher than prices in the 
     United Kingdom, 47% higher than prices in Sweden, and 40% 
     higher than prices in Germany. The United States had the 
     highest prices among the eight industrialized nations that 
     were part of the survey.
       GAO also investigated whether the price differential it 
     observed was attributable to differences in the costs of 
     production and distribution. GAO found that drug costs--such 
     as research and development--are not allocated to specific 
     countries, and the costs of production and distribution make 
     up only a small share of the cost of any drug. The study 
     concluded that ``production and distribution costs cannot be 
     a major source of price differentials.''
     B. Senior citizens in Texas's 20th congressional district pay 
         more for prescription drugs than consumers in Mexico
       As in Canada, consumers in Mexico also obtain prescription 
     drugs in one of two primary ways. Approximately 30% of the 
     pescription drugs sold in Mexico are purchased by the 
     government and provided to eligible citizens at a significant 
     discount through the social security system. The rest of the 
     population in Mexico must either buy their own drugs or 
     obtain prescription drug insurance coverage.
       The regulatory system in Mexico, like the system in Canada, 
     protects individual consumers who buy their own drugs from 
     price discrimination. Drug prices and rates of price 
     increases in Mexico are controlled by the Ministry of 
     Commerce and Economic Development (known by its Spanish 
     acronym, Secofi) under the Pact For Economic Stability and 
     Growth. Under the Mexican law, manufacturer and the 
     government engage in negotiations to determine the nationwide 
     maximum prices for prescription drugs. Pharmaceutical 
     products are prepackaged and stamped with the maximum sales 
     price, guaranteeing consist prices throughout the country.
       This study indicates that the Mexican system produces 
     prescription drug prices that are substantially lower in 
     Mexico than in Rep. Gonzalez's district. Average prices for 
     the top five drugs for seniors were 99% higher in Rep. 
     Gonzalez's district than in Mexico (Table 1.) Prices for all 
     five drugs were higher in Rep. Gonzalez's district. The 
     highest price differential among the top five days was 303%, 
     for Prilosec. an ulcer medication manufactured by Astra/
     Merck.
       For other drugs, price differentials were even higher. In 
     the case of Micronase, senior citizen in Texas's 20th 
     Congressional District pay an average price of $54.81 while 
     consumers in Mexico pay only $9.48--a price differential of 
     478%.
       In dollar terms, uninsured senior citizens in Rep. 
     Gonzalez's district pay nearly $100 more than consumers in 
     Mexico for a one month supply of Prilosec--an annual price 
     difference of over $1,100. Similarly a senior in Rep. 
     Gonzalez's district pays over $45 more than a senior in 
     Mexico for a two month supply of Zocor, an annual difference 
     of over $250, and over $65 more than a senior in Mexico for a 
     100 day supply of Procardia XL, an annual difference of over 
     $200.
       These findings are consistent with those of other experts. 
     While there have been few direct comparisons of prices in the 
     United States and Mexico, the Congressional Research Service 
     has found that differences in the regulatory systems between 
     the two countries result in the large price differentials. 
     CRS concluded that ``of greater importance in explaining 
     price differentials in drug prices in Mexico, and have been 
     for some time.''





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