By Bruce Odessey
Washington File Staff Writer

Washington -- Bush administration officials indicate they have some hope that European countries and Japan will move toward reforming their policies of fixing prices on consumer drugs, policies they say lead to sharply higher drug prices for U.S. consumers.

At the same time the officials, Under Secretary of Commerce Grant Aldonas and Deputy U.S. Trade Representative Josette Shiner, discouraged any legislation that would aim to fix pharmaceutical prices in the United States.

In their April 27 testimony before Senate Finance subcommittees, Aldonas and Shiner argued that because fixed prices in Europe and Japan prevent U.S. pharmaceutical companies from collecting a fair return on enormous research and development (R&D;) investments, those companies make up the difference by charging far higher prices for the same drugs in the United States.

The resulting high U.S. drug prices hurt not only the health of U.S. consumers who cannot afford expensive medicine but also the competitiveness of U.S. businesses whose productivity gains are eroded by soaring health insurance costs, Aldonas said.

The United States "is stuck with the bill" for medical R&D; that benefits other countries, said Senator John Breaux, a Louisiana Democrat.

Yet Breaux asked how foreign governments could ever be persuaded to make the politically sensitive reforms that would effectively raise drug prices in their countries.

Aldonas replied that, in Europe and Japan at least, governments are beginning to recognize the long-term problems their price-fixing policies are causing.

For example, he said, Europe's pharmaceutical companies, unable to earn a fair return on their investment at home, have moved most of their operations to the United States.

And while aging populations in Europe and Japan are raising pressure on governments to hold down public medical costs by fixing prices, Aldonas said, those governments are realizing that policies raising business productivity are more important for the long run than price controls.

The administration officials cited some modest accomplishments. For example, a U.S.-government working group has persuaded a Japanese ministry to stop cutting reimbursements for U.S.-supplied medical devices, Aldonas said.

Shiner said that the broader goal of the working group is to allow foreign companies some participation in development of Japan's health-care policies and to press Japanese regulators to shorten approval time for new pharmaceuticals.

Aldonas said that such changes also would be in the interest of Japanese consumers.

"Japanese patients have also benefited by gaining access to innovative products that save money in the long run and can reduce the length of hospital stays," he said in his prepared testimony.

Shiner also described special provisions of the U.S.-Australia Free Trade Agreement, which Congress has not yet approved, which she said would reform Australia's procedures for approving new pharmaceuticals.

Under questioning Aldonas acknowledged that even if most foreign governments in the developed world did cease fixing drug prices, he could not predict with certainty that U.S. drug prices would fall, in part because pharmaceutical companies have the power to sell the same products at different prices in different segments of the U.S. market.

But Aldonas said he expected U.S. prices would fall as a result of increasing competition as companies employ more R&D; to produce more innovative drugs and as supplies of generic substitutes continue to become available.

Aldonas rejected any proposals to fix drug prices in the United States or to allow re-importation of drugs from foreign markets that have lower fixed prices. Such schemes would lead to the kind of investment disincentives already seen in Europe, he said.