by Merrill Goozner

The prescription drug benefit sections of the Medicare legislation just passed by Congress do nothing to rein in the rising cost of pharmaceuticals or to foster innovation in the drug industry.

In fact, it will probably make a bad situation worse.

A 2001 Nobel Prize went to three economists who explained how unequal access to information distorts a marketplace and robs consumers. The only solution to the "imperfect information" problem is for government to either set prices or pass prudent regulations aimed at correcting mistaken purchases by poorly informed consumers. A good example of the latter is automobile lemon laws.

Under current regulations, no marketplace is more prone to the problem of unbalanced information than pharmaceuticals. As the late U.S. senator Estes Kefauver (D-Tenn.) put it while investigating drug industry price-fixing in the early 1960s, he who prescribes does not buy and he who buys does not prescribe. Combine that with the fact that neither the drug purchaser -- whether it be patients or their insurance companies -- nor the prescriber -- the physician -- has very good information about the best and most cost-effective use of most drugs, and you have a prescription for price gouging.

The root cause of this information deficit can be found in the nation's system for studying and approving drugs, whether they are supposedly innovative molecules seeking government approval for the first time or older medicines that have been around for years. For the most part, we expect the pharmaceutical industry to conduct those tests.

The result is that both the public and the medical profession receive a skewed analysis of the relative worth of various medicines.

Yes, a new drug is safe.

Yes, it is somewhat efficacious against the targeted disease; no drug is universally effective, and many drugs help only a small portion of the people who take them. But how does it stack up against those already on the market?

Only in rare cases does the industry engage in comparison trials, since the risk of losing -- and getting totally shut out of a market -- is too great.

It is much easier to develop new drugs to replace those coming off patent and then push the latest (and therefore more expensive) offerings by sending out an army of salespersons, enrolling physicians in semi-scientific "seeding" trials whose real purpose is to expose their patients to the new drug or flying physicians off to exotic locales for industry-sponsored continuing medical education seminars, where the latest results of seeding trials can be unveiled before an afternoon round of golf.

Patients have even less information about the latest drugs. Since 1997, when the Food and Drug Administration lifted its ban on direct-to-consumer advertising, potential drug customers have been exposed to a rising tide of commercials with virtually no scientific content. The medicines touted in these ads are new. But are they truly improved? Only comprehensive comparative trials, conducted by a neutral third party, can provide that kind of objective information.

On the rare occasion of such trials, they have generated surprising results.

For instance, last winter, the National Institutes of Health released the results of its decade-long $80 million test of competing blood pressure control medicines.

It showed that diuretics, so-called water pills that have been around since the 1950s and can be purchased for pennies a day, were slightly more effective than the still-on-patent calcium channel blockers and ACE (angiotensin converting enzyme) inhibitors.

This is not to say that the newer drugs aren't the right choice for many patients, or that elderly Americans who need more than one drug to keep their blood pressure under control shouldn't have access to them. But with $15 billion being poured into blood pressure medicines every year, the study's authors believed the nation's health care system could save billions by starting most patients off with diuretics.

Two easy reforms would rectify this information deficit.

First, the government could empower NIH or an independent agency to conduct systematic comparative trials on all classes of medicines with multiple entries. The results of those trials would provide physicians with authoritative clinical practice guides to the best and most cost-effective medicines.

Second, the FDA's drug approval process could be amended to include comparative clinical trials for any new drug that a company wants to bring to the market.

The industry will complain that the additional clinical testing would drive up the cost of approving new drugs and choke off innovation.

But just the opposite would occur. The pharmaceutical industry currently spends more than 60 percent of its $34 billion research and development budget on clinical trials.

But much of that money is wasted on trials designed to benefit the marketing arms of the companies and winds up generating more noise than useful information for practicing physicians.

A new requirement that drug companies test their latest offerings against existing medicines would force them to focus their R&D budgets on truly innovative medicines and help identify the best uses for existing drugs.

Merrill Goozner, a Washington-based writer, is author of the forthcoming book "The $800 Million Pill: The True Cost of New Drugs."