Payers Versus Patients: Who Will Stand Up For The Rule Of Law


Dinner Address by Hank McKinnell Chairman and CEO, Pfizer Inc Upon Acceptance of The Atlantic Legal Foundations Fifteenth Annual Award.

I am honored to receive this award, and to share this podium with those who have won it in the past. That includes now-retired Pfizer chairman Ed Pratt, who spoke to you in 1989. Ed always made certain that Pfizer put corporate responsibility front and center. That sense of corporate responsibility influences everything we do.

Tonight, I want to elaborate on the concept of responsibility.

We know that our headlines are filled with stories of serious lapses in trust and responsibility, Worldcom being the latest. These lapses are serious, and those responsible should be punished. No one is above the rule of law. There is, however, another side to the rule of law: that it must be upheld, even for people and organizations out of public favor.

Tonight, I want to focus the question of the rule of law through the lens of Americas research-based pharmaceutical industry. Heres my question: what are the dangers when the government must be both the guarantor of the rule of law and a powerful, often monopolistic buyer of health care products and services? Can governments play it straight, balancing the scales of fairness and justice? Or is there a temptation to bend the rule of law to favor payers interests over those of patients. This question is complicated by the publics perception of drug companies and the role we play in world healthcare. When Ed Pratt accepted this award 13 years ago, the pharmaceutical industry had a reasonably positive image. Today, we still feel the reverberations from the early 1990s, when the Clintons tried to demonize us to support their own healthcare agenda. The public continues to buy-in to a stack of misperceptions about our industry. And, we have not confronted our worst critics very well.

Bob Dole made this point to a group of Pfizer managers last week in Washington. Senator Dole pointed out the difference between how he would have responded to Peter Jennings and his so-called investigation? of the industry and how the pharmaceutical industry actually responded. He said he would have called-in every marker he had in the media and explained that any investigation? that doesnt interview a single patient, isnt an investigation at all. Its a frame-up.

But how did the pharmaceutical industry respond? We actually advertised on the Jennings program, probably paying full network rates.

Clearly, Americas pharmaceutical companies have a long way to go in telling our story to an American public hearing lots of negativity about our industry . Unfortunately, the public perception of our industry affords cover to payers and governments that dont want to sustain their end of a social contract. It is easy to pillory the unpopular, especially if it saves money. Ultimately, negative public opinion about our industry results in greater regulation adverse, often capricious actions by government and, alarmingly, legal decisions that give excessive weight to public perception over justice and the rule of law.

In my experience, the root cause of our unfavorable popular perception is that too many people see pharmaceutical companies as part of the problem? and not as part of the solution. The problem? is affordable access to health and healthcare. The all-too-common perception, one that rolls off the tongues of the Peter Jennings of the world, is that our industry is a barrier to that access. This perception flies in the face of the facts, as I see them.

The fact is that pharmaceuticals have revolutionized medicine and dismantled many barriers to health and health care. The success of our industry in fighting disease is taken for granted. The death toll from AIDS in America, just to cite one example, has dropped by more than 65 percent in the past decade. Why is this? Breakthrough drugs, thats why. Virtually all of these AIDS breakthroughs, as well as more than 90 percent of other new pharmaceuticals introduced in America, were discovered and developed by privately funded laboratories, such as Pfizers. In fact, Pfizer spends $100 million a week on biomedical research. Our discoveries, and those of other researchbased pharmaceutical companies, continue to improve the odds that we all will die, paradoxically, of old age and in good health.

Heres a telling point about the value of pharmaceuticals. The baby boom generation thats most of you, by the way will begin to reach 85 years of age, in about 20 years. Now, the Rolling Stones will probably still be touring, but, right now, fully half of all people who reach 85 are actively progressing through the stages of Alzheimers. We can deal with that in two ways. We can build lots of nursing homes, pay for lots of dead-end jobs in patient care, and prepare to warehouse half of the most influential generation in American history. Or, we can invest in pharmaceutical research in high- paying scientific jobs and cure Alzheimers. To me, the choice is pretty easy. And, with continued incentives for research, I have no doubt that Alzheimers will be conquered.

Americas pharmaceutical industry can do the job; we are the gold standard of the world. Blessed by open competition, a stable legal system and a tradition of patent protection, Americas pharmaceutical industry is arguably Americas most successful industry. It is certainly an industry where we have the potential for sustainable competitive advantage. Our business model is simply stated: high risks, high rewards. Does this model work? Does it really serve patients? You be the judge. Remember 1981, when HIV was first characterized? Remember the near-panic in the 1980s about a mysterious, insidious, highly adaptable and always fatal pathogen? Within six years, a pharmaceutical company put into physicians hands the first drug to treat HIV.

Today, Americas pharmaceutical companies have created 64 treatments for HIV with 100 more, including vsaccines, in development. As a result, the death toll from AIDS in America has dropped by more than two-thirds. In America, HIV infection is progressing from a predictably fatal disease to a more controllable chronic condition. A vaccine or cure is years away, but thats our goal, and we are investing appropriately. That investment $30 billion annually in research is anchored in the confidence that our breakthrough discoveries will be protected from outright copying for a fixed period of time. Create a new drug, one better than current therapies, and you should reap the rewards. Or so it seems.

But payers, usually foreign governments, have their own agendas, and they are often at odds with patient interests, and the rule of law.

Consider what might happen to you, if you were the chairman of a successful pharmaceutical company. Your patented technology may be stolen by companies in India who will copy your products and sell them at substantial profits while their government looks the other way. Your products may be counterfeited again, often with the collusion of an overseas government a dangerous situation for your patients and your reputation. A nation may capriciously delay or deny your products market entry to protect its local industry or to keep down its medical budgets. Doctors may be actively discouraged from using your products, even if they are better for patients. Your products may be subject to unreasonable price controls, backed by threats to expropriate your technology.

Im often asked why we even negotiate drug prices in some European nations, when we know that their price offers will not nearly reflect the costs of developing the medicine. What choices do we have? Do we deny the medicine to people who need it? Do we risk the expropriation of our technology? Pfizer has no negotiating leverage in dealing with nations that have monopolies on drug pricing. Its their way, or the highway, and that unfairly shifts the cost of research onto patients in freer-market nations.

In all of these cases, the organizations that pay for healthcare, again usually governments, benefit from distortions in the rule of law. These governments pose numerous arguments to buttress their efforts to keep from paying for the health care they promised their citizens and to keep from paying their fair share of the cost of drug discovery and development. Ignoring the rule of law, we hear time and again, is entirely justified when society is in peril.

The HIV/AIDS crisis is often cited as one of those perils, where the ends justify the means. Without question, the HIV/AIDS crisis is a tragedy nearly beyond human comprehension. But I am disturbed by simplistic solutions to the complex problems of the HIV pandemic. Confiscate or ignore patents, some thinking goes, and patients will benefit from cheap drugs. No matter how cheaply you can provide a drug, however, it is of no use if it cant be delivered. Overturning patent law does nothing to tear down the barriers of healthcare access in southern Africa and other areas devastated by HIV. Instead, it gives cover to companies, who, with their governments complicity, stand to profit from the theft of our intellectual property. Or it distracts attention from the lack of will by governments to meet this crisis head on. The call to overturn patent law ignores a large, troubling reality: that many people do not have access to essential medicines because of social, political, and economic reasons that have nothing to do with the patent system.

The unvarnished truth about the AIDS crisis is that none of the nations most seriously affected have the infrastructure to deliver adequate treatments. They dont have the roads, the hospitals, the doctors, the training, the storage facilities, the communications networks or the other elements needed for broadly based anti-retroviral therapies. Nor, interestingly, do they have patents, or the rule of law.

The emphasis has to be on building that infrastructure. This includes direct aid and I congratulate President Bush for his commitment to contribute a halfbillion dollars to UN efforts to build that infrastructure. It also includes freeing developing nations from unfair tariffs and import restrictions on the goods they grow and produce. It is hypocritical for the developed world to admonish the developing world to trade their way out of poverty? all the while protecting a variety of domestic industries. Abrogating the rule of law, no matter how politically popular, is almost always counterproductive.

In the case of pharmaceuticals, it undermines the incentives needed to sustain research and ultimately makes investment in biomedical innovation a bad bet.

I often hear from payers notably, European governments that we make too much in profit and that our margins can be forced down without damaging our efforts to create new medicines. Thats just not true. Exhibit Number One is the European pharmaceutical industry. A quarter-century ago, Central Europe was the medicine chest of the world. Today, that vibrant pharmaceutical industry is nearly gone. Its vanished because national governments in Europe chose to stifle competition over allowing a vibrant industry to flourish and renew itself. You get what you pay for, and if you dont want to pay for pharmaceutical research, you dont get it.

I also hear from American legislators, and Canadian-born broadcasters, that prices for branded pharmaceuticals are much cheaper in Canada. First of all, they arent that much cheaper. More importantly, Canada destroyed its own research-based pharmaceutical industry more than 30 years ago. Canada now protects its generic industry and what you dont hear about is Canadians coming to America to buy generic drugs at 20 to 25 percent of Canadian prices. You also dont hear of how importing pharmaceuticals from Canada to America is well, illegal. Officials on both sides look the other way when busloads of people cross the border with suitcases full of prescription drugs. They do this for one reason: to coerce companies like Pfizer into selling our products at prices that do not reflect the costs of research.

In any case, numerous nations have undermined their own domestic drug industries to favor payers over patients. Theyve distorted the rule of law to exact favorable pricing to protect local industry or to circumvent patent law. Ultimately, these distortions come back to affect patients, who lose out on medical innovation, and to affect societies, who lose out on employment, economic development and the synergies of wellintegrated medical treatment systems.

Europe is now facing the unintended consequence of its own social policy. That is, a new brain drain: pharmaceutical researchers coming here as the last refuge of unfettered medical R&D. But we shouldnt spend much time patting ourselves on the backs in the United States for our enlightened approach.

The tort crisis is as much a threat to our continued productivity as price controls in Europe or intellectual property theft in India. I congratulate the Atlantic Legal Foundation for your work in tort reform, particularly in fighting the menace of junk science in our nations courtrooms. The threat from jackpot justice? in places like Texas and Mississippi is already raising the hurdle rate for decisions on what projects should be pursued in biomedical research. When states pander to the plaintiffs bar and tip the scales of justice away from companies, it does hurt and that hurt goes way beyond the bottom line. It affects the projects we choose to pursue, the medicines we can afford to research and the patients waiting for new cures.

So, what to do? As I said in the opening of my remarks, at the heart of our situation is the belief that our industry is a big part of the healthcare access problem. Ultimately, we, as an industry, need to reposition ourselves as a big part of the solution. My view is that we, as an industry, must create partnerships that engage payers, patients and everyone in between. We must foster alliances among governments, non-governmental institutions, other companies, and academic institutions. There are models that work.

They are not overnight solutions, but they are solutions, if everyone is willing to work at them. In combating disease in developing nations, Pfizer and other companies have helped to launch a number of partnerships that are taking hold and getting results. For example, International Trachoma Initiative, of which Pfizer is a key partner, is fighting an eye infection that causes ten million cases of blindness a year, all in developing nations, and all preventable. This partnership benefits from donations of our antibiotic, Zithromax, but at its core is a well-thought-out, long-term approach to treating trachoma. Here, governments, companies and NGOs work together bolstered by aggressive goals, real accountabilities, and longterm commitments. The results have been impressive, and the initiative stands a good chance of ending trachoma by the year 2020. Closer to home, Pfizer is pioneering disease management approaches that provide a new kind of care for the poor and chronically ill.

In all of these partnerships, we can support the business model that has worked so well for so many years. That is we can afford to give away our products for free to those who truly cannot afford them but we cannot afford to do the same for payers who can afford them. We will gladly take price out of the equation if we can help those who truly need help. We are doing just that in the United States and Africa. But, in return, we ask governments to stand up more firmly for the rule of law, and to support the treaties to which they have committed. Yes, to answer a question posed in a Wall Street Journal headline, Americans should not be subsidizing drugs for Norway; or France, or Canada or anywhere else rich enough to afford a flourishing competitive market. We, and the other rich nations of the world, should be helping to build health caresystems in southern Africa and the other nations afflicted by infectious disease. In closing, let me say that dissatisfaction with our industry has been skillfully exploited by those who pay for healthcare. These payers have used lapses in the rule of law to benefit themselves, or to abet their local industries. In response, we as an industry must do better in proving that we are part of health and healthcare access solutions. Equally important, the payers of healthcare must stand behind the systems of rules and regulations they helped create, even at short-term cost. This will take creative action, starting with the willingness by governments to acknowledge the proven value of medicines, and commitments to tackle the complex issue of access to medical care. We can no longer be the scapegoats for a failing health care bargain between governments and voters.

We can be part of the solution if the payers of healthcare work to restore fairness and justice to our highly regulated industry. Pharmaceuticals are, and always will be, a high-risk, high-reward business. Gaming the system to deny us the rewards of success may gain some votes, fatten the wallets of the plaintiffs bar, or satisfy the bureaucrats but ultimately, it will slow research into the cures of the future. That leaves millions of patients with no help and no hope.