WASHINGTON -- President Clinton's health policy advisers have suggested that the government set guidelines for new drug prices, monitor compliance and reprimand companies whose prices are judged to be excessive.
But under heavy lobbying by the drug industry, the administration has apparently backed away from the idea of trying to impose rigid, legally binding controls on drug prices. Prominent Democrats, including Senate Majority Leader George J. Mitchell, D-Maine, have also expressed distaste for price controls in general.
While administration officials still assert that drug prices are too high and have been rising too fast, they now appear willing to try government exhortation and voluntary restraints rather than compulsion as a means to curb such costs.
Confidential work papers obtained from the President's Task Force on National Health Care Reform suggest that the government should establish a drug price review board to set guidelines for drug prices.
The board would collect data on drug prices and manufacturing costs and could, through "adverse publicity," put pressure on a company to reduce prices.
"Under this option," the papers say, "the board would collect information about prices, and it would establish guidelines as to a reasonable price for prescription drugs that have no therapeutic alternative. It would have the authority to publicly condemn any companies that violated the guidelines."
The board would be loosely modeled after a Canadian agency, the Patented Medicine Prices Review Board, which, according to a recent study by the congressional General Accounting Office, has helped slow the rise of drug prices in Canada.
Rep. Pete Stark, a California Democrat who is chairman of the House Ways and Means Subcommittee on Health, has introduced a bill to create a similar board, and the American Association of Retired Persons supports the proposal.
Drug companies dislike the idea of a price review board, fearing RTC it would gain access to confidential data on their research, marketing, promotion and other costs. Moreover, they worry that after creating a board with limited authority, Congress might later give it power to set prices.
President Clinton has not made a decision on such a review board, nor has he decided how to prevent drug companies, doctors, hospitals and other suppliers from raising prices during the transition to a new health care system, which could take three to five years.
The White House says the health care proposal, originally scheduled to be issued May 3, will not be unveiled before mid-June.
Sen. David Pryor, D-Ark., said it was reasonable for the government to restrain drug prices because manufacturers would get a windfall when millions of people gain insurance coverage for drugs under Mr. Clinton's plan.
But Kevin Colgan, a spokesman for Merck & Co., said his company saw no need for a government agency to review drug prices.
"The vast majority of new drugs are responsibly priced," he said in an interview. "When somebody sets an outrageous price, there are plenty of public interest groups and elected officials who can focus attention on it."
Last month, Merck proposed a voluntary system of price restraints, enforceable through contracts between drug manufacturers and the federal government. Merck suggested that companies be given the opportunity to sign such a contract "rather than be forced into mandatory legislative government price controls."
Under the Merck proposal, the average of the price increases for all of a company's prescription drugs could not exceed the general rate of inflation, measured by the Consumer Price Index. For any one product, the increase would be limited to the rate of inflation plus one percentage point.
People working for the health panel, headed by Hillary Rodham Clinton, said they welcomed Merck's proposal as an acknowledgment that some drug prices were too high.
Administration officials said they would probably ask Congress to authorize such "voluntary agreements" through legislation, perhaps with the addition of safeguards to make sure companies comply.
The Pharmaceutical Manufacturers Association estimates that prescription drugs account for 7.2 percent of total spending on health care in the United States, or $67 billion of the projected $940 billion total this year.
For a decade, drug prices have been rising more than twice as fast as the Consumer Price Index, and they are a ripe target for politicians because consumers often pay such costs themselves. Private insurance is much less likely to cover drugs than hospital care or doctors' services.
The Pharmaceutical Manufacturers Association says 72 million Americans have no insurance coverage for prescription drugs. This group includes 37 million people with no health insurance at all.
The administration says it plans to change that. Ira C. Magaziner, manager of the task force, told consumer groups last week that the administration would recommend coverage of prescription drugs as part of the standard package of benefits guaranteed to all Americans.
In the presidential campaign, Mr. Clinton said he would "stop drug-price gouging."
Mr. Clinton's health plan is based on a strategy of managed competition, which envisions networks of doctors and hospitals competing under government supervision.
The administration assumes that competition will hold down drug prices when there are two or more similar products on the market. In such cases, a health plan could negotiate over prices before deciding which manufacturer's drug to buy.
But, the work papers say, "There is no reason to expect that market mechanisms will control prices of single-source drugs for which there is no therapeutic equivalent."
The work papers also offer a political argument for government action: "If citizens do not see some moderation in drug price increases, the administration will probably be held accountable."
A lobbyist for a major drug company was equally blunt. "Administration officials," he said, "have made a political calculation that they need to go to war with us and with insurance companies, to have us as the opposite pole to them."