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Merck Moves to Head Off U.S. Drug-Price Controls : Pharmaceuticals: Under voluntary program submitted to First Lady's task force, industry giant offers a bold plan to keep price increases in line with inflation.

April 17, 1993|THOMAS S. MULLIGAN | TIMES STAFF WRITER

Stepping up its bid to head off federal price controls, pharmaceuticals giant Merck & Co. on Friday proposed a voluntary price-restraint program for the drug industry--a plan with teeth.

Merck's program, submitted to First Lady Hillary Rodham Clinton's task force on health care reform, calls for drug makers to voluntarily sign contracts with the government pledging to keep overall price hikes in line with the consumer price index. Manufacturers would limit price boosts for any one product to one percentage point above the inflation rate.

Independent auditors would review pricing and order rollbacks of any increases found to be excessive. Money collected from rollbacks would go into a government fund to help improve access to health care.

If adopted industrywide, Merck said, the proposal would pare $7 billion to $9 billion from America's pharmaceutical bill over the next three years.

Analysts said the proposal could give Merck a competitive advantage over rivals. But the New Jersey-based firm said it is willing to sign a three-year contract under the plan--regardless of what its competitors do.

"It's a very serious proposal, and we're taking it very seriously," task force spokesman Bob Boorstin said Friday. "This is just another indication that people understand that health care reform is coming this year."

Merck's move is the latest and most aggressive element of a drug industry campaign to keep pricing policy in its own hands.

Lately, members of the White House task force have backed off from their earlier support for congressionally imposed price controls on health care products and services. But the industry--still smarting from President Clinton's singling out of drug makers as engines of health cost inflation--still takes the threat seriously.

Analysts said Merck's plan has political appeal, because it could provide a credible cost-cutting alternative to legislated price controls. Government controls have been attacked as ineffective at best and destructive to business at worst.

Merck Chairman P. Roy Vagelos discussed a version of the plan last month with Sen. David H. Pryor (D-Ark.), chairman of the Senate Special Committee on Aging. At that point, Vagelos hadn't decided how it might be enforced.

Besides Merck, 12 major manufacturers--accounting for half of America's $59-billion drug market--already have proposed price-restraint programs, according to the Pharmaceutical Manufacturers Assn., a Washington-based trade group.

However, nobody else has proposed signing contracts or limiting increases drug-by-drug.

It is typical of Merck to take the boldest step. With annual sales of nearly $10 billion, it is the world's largest prescription drug company. Merck regularly shows up on lists of America's most-admired companies--but within its industry, the admiration is mixed with equal parts of fear.

"Merck has been accused of trying to use public policy as a competitive weapon," said one health care analyst who asked not to be identified.

Evan Sturza, editor of Sturza's Medical Investment Letter in New York, said that Merck is in a good position to live with pricing limits on its existing drugs, because it has "a pipeline that will bring out new products every year for the next 10 years."

The proposal doesn't address how a company will price its new drugs; it affects them only after they are on the market.

Some of Merck's major competitors--Upjohn Co. and Syntex Corp., among them--depend far more heavily on existing product lines and could be hurt by restrictions like those proposed by Merck, Sturza said.

Gordon M. Binder, chairman of Amgen, a Thousand Oaks-based biotechnology firm, said through a spokeswoman that he favors an alternative proposal that would keep overall price hikes even with the inflation rate and return any excessive charges to consumers.

Times staff writer Edwin Chen in Washington contributed to this report.

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