Prescription Drugs And Managed Care: Can ‘Free-Market Détente’ Hold?

PROLOGUE: For years a major debate has taken place over the appropriate role of for-profit organizations in financing and delivering medical care. While this issue has never been resolved, another pressing question has emerged: If for-profit organizations are destined to prevail in American health care, how should they be regulated? The managed care industry, which has abandoned its not-for-profit roots and is now dominated by the profit motive, has joined forces with the pharmaceutical industry, the most profitable of U.S. industries, to limit government regulation. Donald Moran sees in these combined forces the “satisfying potential for vindication” of the principles of marketplace competition that he has long advocated. However, “before we uncork the champagne cooling in the refrigerators of the conservative think tanks of America,” he cautions that the situation also holds the potential to be “market advocates' worst nightmare.” That is, rising drug costs and growing demands to add a prescription drug benefit to Medicare may invite greater government regulation of drug prices, a step that many would consider disastrous in a nation that allows manufacturers more freedom in setting their prices than does any other industrialized nation. In this paper Moran draws on his own experiences and the observations of other seasoned warriors in this ongoing battle, from both the managed care and the drug industries, to shed light on the changing scenario and its implications for the U.S. health care system. Moran is principal of the Moran Company, which he founded in 1998 after spending twenty-four years in the health and human services fields, both public and private. ABSTRACT: The rapid rise in pharmaceutical benefits costs, often cited as a major contributor to the resurgence in health care cost growth, is beginning to strain the relationship between the pharmaceutical and the managed care industries in the United States. In interviews conducted in 1999, executives from both industries maintained a continued preference for a market-based resolution of these tensions. There is evidence, however, that this private-sector détente may give way in the face of the rising business and political pressures that both industries face. Active leadership will be required to prevent deterioration of the prevailing political climate toward economic controls.