Prescription Drugs: Negotiation, Reimportation, Buying Pools and Other Important Reforms

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Problem: The state PIRG's latest report, "Paying the Price: A 19-State Survey of the High Cost of Prescription Drugs" found that uninsured consumers paid 72% more, on average, than the federal government pays in bulk for the 10 most commonly prescribed prescription drugs. In 2003, American employers spent more than $70 billion through pharmacy benefit managers, and their drug bills rose 9.1 percent. Congress and the current administration have failed to enact meaningful reforms to reduce the prices Americans pay for their prescription medication. As a result, consumers have been forced to find their own solutions to the high cost of prescription drugs. Last year, an estimated 1-2 million Americans spent approximately $1 billion on technically illegal purchases of prescription drugs from Canadian pharmacies.

Prescription drug prices are soaring at over 4 times the rate of inflation, and account for the third largest area of health expenditures, behind only hospital care and physician services. According to the Centers for Medicare & Medicaid Services, prescription drug spending is projected to increase to $235 billion per year by 2005. Consumers pay up to 30% of the total cost out-of-pocket. In 2002, the top ten prescription drug companies netted profits of $36 billion; that is equal to more than one-half of all profits for Fortune 500 companies in the same year.

Because of our federal elected officials' unwillingness to take on the powerful Phrma lobby and regulate the pharmaceutical industry, Americans pay more for their prescription medication than citizens in any other industrialized nation. State officials have done what they can, and continue to lead the way, but Congress needs to do more to fight the tactics used by the drug industry to keep prices high.

For example, pharmaceutical companies spend millions on marketing their products to both consumers and doctors to influence which prescriptions patients request and which prescriptions doctors prescribe. The rapid growth of Direct-To-Consumer drug advertising has fueled an increase in the use of over-priced brand name drugs and often resulted in consumers becoming over-medicated. Worse, neither consumers nor doctors have access to the information needed to make informed decisions about the cost and efficacy of these prescription medications.

In addition, the drug companies promote myths about allegedly high research and development costs to justify the high price of prescription drugs. And, the industry exploits loopholes in the law to prevent lower price generic drugs from reaching the market.

Unfortunately, current law stifles fair competition and allows pharmaceutical companies to dictate the prices charged for prescription drugs. For example, the federal government is prohibited from utilizing its buying power to negotiate lower prescription drug prices on behalf of non-federal employees and large populations that cannot afford prescription drugs. Further, the Pharmacy Benefit Managers (PBM's) that control the majority of the country's drug supply do not disclose the price that they charge their customers for prescription medication.

Solution: The PIRG platform: allow consumers and state agencies to buy drugs in bulk through prescription buying pools, increase access to low-cost generic drugs and provide more information on effectiveness of similar drugs so the buying pools can get the best drugs at the best prices.

To lower the cost of prescription drugs for all Americans, Congress and the Administration must take steps to regulate the pharmaceutical market and protect consumers from the pharmaceutical companies' profit motives and willingness to deny medication to those who need it most.

1) Congress should immediately rescind provisions of last year's Medicare law that prevent the federal government from negotiating with the drug industry on behalf of consumers. For example, the federal government should negotiate lower drug prices on behalf of all 40 million Medicare beneficiaries. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (HR 1) signed into law by President Bush in December, wrongly prohibits administrators of the program from entering into voluntary negotiations with drug companies to achieve fairer prices.

2) In the short run, the most effective step Congress could take right now is to enact legislation legalizing the reimportation of lower-priced prescription drugs from Canada and other countries with smilar regulatory systems.

3) Congress should encourage creation of prescription drug buying pools that would allow businesses, the government and individuals of all ages to use their combined buying power to negotiate lower drug prices, as numerous states have done.

4) Congress should end the practice of direct to consumer (DTC) advertising. As an interim step, it should close loopholes in current legislation allowing DTC advertising. For instance, a drug manufacturer does not have to include information about the side effects of a drug in a DTC ad, if the advertisement does not explicitly say what the drug is used to treat.

5) Congress should place strict limits on drug company marketing to doctors and health professionals, known also as physician directed pharmaceutical promotion or detailing.

6) Congress should fund comparative effectiveness research as a consumer education, doctor education, and cost-containment measure. More specifically, U.S. PIRG supports creating a national version of "The Drug Effectiveness Review Project" created by the state of Oregon. The state began funding and using evidence-based research (EBR) related to prescription drugs for its Medicaid program in 2002.

7) Congress should close the loopholes in the Hatch-Waxman Act, that allow pharmaceutical companies to use various tactics to delay the introduction of lower-cost generic drugs.


Legislative Update:

Negotiation: U.S. PIRG has urged support of a discharge petition (Frost-D-TX) that would bring HR 3767 (Berry-D-AR) to the House floor for a vote. Leadership has blocked the bill, which has 52 co-sponsors. If the House bill passes, similar legislation would immiediately move through the Senate.

Reimportation: The House passed HR 2427 last session on July 25, 2003 (introduced by Rep. Gutknecht R- Minnesota). The measure had bipartisan support, 53 co-sponsors and passed by a vote of 243-186. (155 Democrats, 87 Republicans and 1 independent voted for the bill.) This session two Senate bills to legalize the importation of drugs have a chance at passage. The PIRG-backed bi-partisan Senate bill (letter of support) with bipartisan support, S 2328, (Dorgan (D-ND)-Snowe (R-ME)), has 30 co-sponsors and is being held-up in the Senate Committee on Health, Education Labor and Pensions (HELP). HELP Chairman Gregg (R-NH) has a competing bill, S 2493, which would impose extremely burdensome requirements on the FDA and foreign exporting pharmacies and delay importation from Canada for another year.

What You Can Do:
Urge your Senator to co-sponsor and support S 2328 (Dorgan-Snowe) to legalize prescription drug reimportation.

PIRG letter supporting S2328 (Dorgan-Snowe) on reimportation.

U.S. PIRG letter urging support of a discharge petition (Frost-D-TX) that would bring HR 3767 allowing negotiation by the government with Rx firms (Berry-D-AR) to the House floor for a vote.

PIRG Rx report (2003) "Paying the Price"

CALPIRG report and news release (9/04) on drug company detailing and influence peddling to doctors.

Oregon State PIRG's Rx pages.

CALPIRG Rx pages.

PennPIRG Rx Campaign.