Drug companies face backlash from new foes

In a private room at Smith and Wollensky, one of New York's top steakhouses, about 30 doctors slice into juicy sirloins as $400 bottles of wine are passed around. An expert in their field is there to talk about a specific ailment and the drug treatment he finds the most effective.

The stated purpose of the meeting is medical education. But it's being paid for – including the expert's speaking fee – by the pharmaceutical company that happens to manufacture the drug treatment being touted as the best. "That kind of thing is common," says one doctor who was at the recent event but asked not to be named. "It happens all of the time."

But it may not for long. Such "educational" dinners are just one of the marketing practices now under scrutiny as part of a larger assault on the nation's pharmaceutical companies. As drug costs escalate, several unlikely coalitions of consumer groups, corporations, state governments, and labor unions have joined together to challenge the once seemingly invincible industry.

They charge that some of the drug companies' business practices are misleading, unethical, and in some cases outright illegal. As a result, they believe it is contributing to the rise in drug prices, which is busting state Medicaid budgets and driving up the cost of insurance for average Americans.

The industry says it's being unfairly targeted in this anticorporate climate. It also warns that the current series of assaults will only undermine its ability to bring new cutting-edge drugs to the market, which will hurt consumers in the long term.

Still, the pharmaceutical industry is finding that a combination of lawsuits and grass-roots calls for change has challenged the dominance of lobbyists' once-powerful purse strings on Capitol Hill. The tide, say some health-policy activists, appears to be turning against them. "There's a backlash afoot in the country, and it's not just the angry activists," says Bradley Cameron of Business for Affordable Medicine. "It's the governors, the corporations, the labor unions, and the insurance companies."

The House recently took a turn weighing in. Lawmakers held a hearing on a bill that would close loopholes in a law that federal officials say major drug manufacturers are using to keep lower-cost, generic drugs off the market. Then, it was the Bush administration's turn. It issued a warning two weeks ago that many of the drug companies' longstanding marketing practices – including the lavish dinners, as well as the practice of offering doctors trips and tickets to Broadway shows and sporting events – could violate federal antifraud and kickback laws.

The Office of the Inspector General of Health and Human Services, which issued the guidance, was particularly concerned with drug companies hiring doctors and other healthcare professionals as "consultants." It also questioned the incentives given to insurance-benefit managers in hopes of persuading them to cover a particular brand-name drug. The primary concern is that these practices are prompting doctors to switch patients to new, more-expensive drugs that may not be any more effective than older ones.

The Pharmaceutical Manufacturers of America (PhRMA), which represents the brand-name drug companies, defends its practices and says that it put out a new set of guidelines for its sales representatives last summer. "We clearly indicate that sports events and lavish entertainment are inappropriate," says PhRMA's Jeff Trewhitt. "You will see a lot less of that in the future."

Consumer activists are also hopeful the guidance will have an impact. But they note how deeply ingrained such marketing practices are in the medical culture. Larry Sasich, a pharmacist and research analyst at the consumer group Public Citizen, says the federal guidance reads like "a little primer for the world's largest corporations on how they should behave ethically and honestly."

"It makes you wonder where these companies have been in the first place," he adds. "But the message is that the federal government is going to go after" them.

Other analysts, like Robert Blendon of Harvard's School of Public Health, don't think the warning will have a "huge effect" on company spending. "But it will have an effect on the ethics of the profession and public confidence," he says. "People don't want their physicians to have an economic stake in the drugs they're prescribing."

The drug companies' marketing practices are just one area of their business practices under assault. In the last three years, dozens of lawsuits have been filed against drug manufacturers challenging some of their patent practices.

A patent for a new drug lasts 20 years. Under the federal Hatch-Waxman Act, a company can gain a 30-month extension if it files another patent for its drug. Generic drugmakers maintain that their brand-name rivals routinely file frivolous patents, particularly on their most lucrative products. In some cases, they file multiple patents to get multiple extensions and keep generic versions off the market indefinitely.

PhRMA's Mr. Trewhitt calls that a gross distortion. He notes that since the 1984 passage of the Hatch-Waxman bill, which opened up the playing field more to generic drugs, the market share for generic drugs has increased from 19 to 47 percent.

But this summer, the Federal Trade Commission found that drug companies have been filing more multiple patents since 1998. In eight instances involving blockbuster drugs, it said the companies had filed questionable patents in an effort to keep generic drugs off the market.

After the report was issued, the industry suffered a rare defeat in the Senate on the drug bill now under consideration in the House. PhRMA opposes the legislation, saying it will make it more difficult to do research and bring new drugs to market.

In another attack on the industry, 29 states filed a class-action suit last spring against Bristol-Myers Squibb. They say the company entered into an illegal antitrust agreement with a generic drug company to keep its less-expensive generic version of a cancer-fighting pill off the market. The company denies wrongdoing.

Consumer advocates believe the growing pressure on the industry will eventually impact the cost of health insurance. "It's a step in the right direction," says Ronald Pollack of Families USA. "But ultimately, we're gong to have to be very clear and say some of these practices are illegal and punish people if they continue them."