The phony issue of brands versus generics is on center stage again.

HEW and FTC have proposed a model state law designed to induce doctors and pharmacists to substitute "less expensive" generic prescription drugs for "expensive" brand names. The model law would supposedly increase competition and provide substantial consumer savings.

The Pharmaceutical Manufacturers Association, whose companies make 90 to 95 percent of the drug supply, oppose this and other federal intrusions into the pharmaceutical marketplace. Why? To explain, we must look at the real world, not the one fabricated by bureaucrats.

"Single-source" drugs -- those marketed by only one firm -- account for about 55 percent of all prescription drug sales. Thus generic prescribing, or substitution, could only make any difference in price in the remaining 45 percent of sales. Manufacturer list prices are poor guides for retail pricing and often vary significantly from actual transaction prices paid by pharmacies. Price gaps narrow further at the prescription counter. For example, the innovator's brand of the widely prescribed antibiotic, tetracycline, costs about the same on average as generic versions.

Invariably, doctors prescribe and pharmacists dispense products from companies they trust for quality, dependability and service. Thus most generic prescriptions are filled -- not with cheap generics, as is commonly believed -- but with quality brands or generics from established firms.

This system has worked well. Frequently the consumer can save money because the physician will prescribe or the pharmacist can dispense either a lower-priced brand or generic version.

Government at both state and federal levels has thrust itself into this efficient and highly competitive marketplace with programs that encourage the use of only low-cost "generics." In trumpeting this cheap drug policy, government distorts facts.

For example, in citing cases of absurdly atypical price differentials, it leads consumers to believe that such differentials are usual and widespread. They are not. Where they do exist and the consumer can benefit -- and quality can be assured -- fine!

Government charges industry with espousing only "expensive" brand names. PMA has never done so. After all, our companies make most of the generic supply as well as most of the brand specialties. The brands versus generic issue is phony because the only thing that matters is the competence of the source and the integrity of the product -- not drug nomenclature.

The capabilities of companies vary. A recent study of Food and Drug Administration recalls shows that a sample of research-intensive companies, producing perhaps 80 percent of the drug supply, had one million units recalled in just one year, while a sample of non-research-in-tensive companies, producing a far smaller percentage of the supply, had 15 million units recalled. The latter group also had 43 times more court actions filed against them.

Government claims that the FDA can assure uniform quality and equivalency. Not so. The agency conducts very few tests for drug equivalence. It cannot provide 100 percent assurances that two chemically equivalent drugs can be safely interchanged. While FDA does a good job in monitoring the safety of a generally excellent drug supply, it has nowhere near the resources to guarantee the quality and bioequivalence of all marketed products at any given time.

Equivalence problems have been reported over the years for many widely prescribed drugs. Just a few months ago, FDA proposed an amendment to antibiotic regulations, noting that:

"Data available to the FDA show that there have been batches of tetracycline hydrochloride capsules... that met the requirements of official monographs but were not bioequivalent to a reference product."

Our quarrel is not only with awkward and costly schemes that seek to hammer down drug prices, but with a heedless government philosophy that this can be done without social costs. Penalties must be paid if public policy demands and enforces a cheap drug approach. For one thing, it would unfairly advantage commodity-type producers who do no research, practice minimum quality control and provide few services with limited distribution. Any system that would force prices toward commodity-type levels would shrink the funds for research -- the most important function of the drug industry.

Last year the research-intensive companies spent $1.3 billion of their own money seeking new products (government provides less than one percent of the industry's R&D). Useful leads do come from NIH and academe, but the resources to develop new therapy come almost exclusively from the industry. It is costly. To research and develop a single new drug entity cost, on average, around $10 million in 1972. Today it runs closer to $50 million. In constant dollars, the rate of pharmaceutical R&D growth has declined in the '70s. Current government policy could accelerate that rate of decline.

The research-based segment of the industry seeks more cost-effective therapy -- the best answer to climbing medical costs. Innovative drugs and medical devices reduce the greater costs of surgery, hospitalization, doctor visits and time off the job. For example, one recent new drug -- the result of many years of company research -- is saving thousands of patients from undergoing ulcer surgery. Yet, prescription drugs today account for only eight cents of the health-care dollar, down from around 12 cents in 1967.

In the end, society must choose. It can't have it both ways. Public policy can be based on a drive for lower prices. Or public policy can demand from industry augmented efforts -- based on adequate rewards for innovation -- to develop better therapies. Without that incentive, those products that might on some tomorrow save health or life -- yours and mine -- simply won't be there.