Government price-fixing of new medicines is “the road to a world without innovation,” US Health and Human Services Secretary Michael Leavitt has warned European health care regulators and politicians.

An estimated $5-$8 billion is eliminated from pharmaceutical R&D spending every year as a result of government price controls on medicines, and if the US federal government were to start negotiating prices, as those in Europe do, this would harm US innovation and could lead to patients in both Europe in the USA being denied access to important drugs, Sec Leavitt told a conference in Paris, France, yesterday, which was organised by IMS and France’s research-based pharmaceutical industry group LEEM. “Such systems support the wrong things,” he said, and urged Europe to consider more market-driven systems.

Europe also has a very serious stake in the current debate on the affordability of the US care system, added Sec Leavitt. There are two competing philosophies about the government role in health care, he said; the first is that it should “own” the system, which would include price-setting, and the second says the government’s role is to organise the system.

While his own view is that the government’s role is to ensure that its citizens have access to affordable insurance policies, Sec Leavitt said that both competing philosophies are present in the US system; 60% of the market is covered by private insurance and 40% by the government. Both have drawbacks - government systems lack consumer sensitivity, while private systems have gaps in coverage - but these issues are fixable, he said.

US Medicare, which provides health care for seniors and the disabled, is a model for all other systems because it is the largest player – nothing else has the ability to shape like Medicare, he said. It does not negotiate prices with manufacturers for its prescription drug benefit, which is known as Part D and was introduced three years ago, but does so for every other service offered by the programme. “Make no mistake, the government sets prices,” he said.

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But Medicare is “quality-indifferent,” it lacks the discipline and restraints of a global budget and it is now facing the real possibility of insolvency within a decade. If that happens, the economic consequences for the USA will make the sub-prime mortgage crisis look like “warm summer rain,” said Sec Leavitt.

The Medicare Part D drug benefit has created a generation of increasingly skilled health care consumers, as it enables beneficiaries to choose the insurance plan which suits them best, he said. The government organises the programme but does not bear the risks – the insurers do that - and to date, 93% of the 43 million Medicare beneficiaries who are eligible to enrol in the benefit have done so, 85% of them are happy and the programme’s costs are turning out be 40% lower than government actuaries had forecast at the time it was introduced.

The lower costs are due to competition, he said; the insurance plans “grind pharmaceutical manufacturers to the lowest possible price.” Sec Leavitt also told the meeting that while he gets complaints about virtually every other part of the health system, where Medicare fixes the prices, he gets no complaints about Part D, where it does not.

However, the US and European systems can learn from each other but they are completely different and cannot be compared or copied, European Commissioner for Health Androulla Vassiliou told the conference. Responding to Sec Leavitt’s comments that US consumers are funding the world’s pharmaceutical R&D, the Commissioner said that Europe does not want to leave innovation to the USA, and that the way forward is to create funding for innovation through the increased use of cheaper generics.