During the 2000 presidential campaign the high costs of prescription drugs became an important issue that has yet to be resolved by Congress and the president. Affordable health care continues to be a major social concern for the nation. Advances in medical science and technology undoubtedly contribute to prolonged life expectancy and expected maintenance of good health. Extended life expectancy has created new problems for the current health-care system.
The rapid rise of chronic disease conditions is also associated with social and emotional problems. Discounted health insurance and government-subsidized health care have, in fact, stimulated greater utilization of more expensive medical technologies, which has resulted in higher health-care costs and the need for more medical subspecialist. The cost of health care in the US is currently one of the largest expenditures and is expected to account for an even greater share of projected national resources (Lee & Lee, 2003).
The use of lifestyle drugs dramatically increases the total annual consumer intake of pharmaceuticals, and creates a great deal of controversy over which drugs should be covered by managed care and which should be paid for by the consumer alone (Plunkett, 2007). Drug Prices Drug prices and profits are inextricably linked. The industry claim has been that its high prices in the United States are necessary to pay for the high costs of discovering new drugs, mainly carried out in the United States, and they in turn are necessary for the innovation that is the key to future health.
We have said enough already to suggest that it is a weak claim. The last step needs to be taken: that of showing that the industry does not require the high American prices, to sustain either the American market or any other market in the developed world. Consider the following facts (or so we construe them). In the United States itself, institutional buyers of drugs are able to gain major discounts from pharmacy prices (up to 50% off manufacturers’ prices) by buying in quantity and bargaining for what they buy.
But their success in bargaining not only indicates power of market bargaining, but also makes clear that the industry has judged it can live with a lower profit prices paid for drugs in Europe and Canada. If it could not make a profit in those countries, or with many American institutional buyers, why would it sell to them at all? Because the American prices are so high, subsidizing everyone else? But since the industry will not provide a breakdown of its gains and losses in specific countries, we are asked to simply accept its claims as proof (Callahan & Wasunna, 2006).
Americans pay more for prescription drugs than anyone else in the world. In 2002, prescription drug prices in other rich countries were 37 percent to 53 percent below American prices. Between 1998 and 2002, the price of prescription drugs in the United States increased three times faster than the rate of inflation and faster than the rate of inflation and faster than any other item in the nation’s health-care budget. Elderly people and people with chronic medical conditions such as diabetes feel the burden most acutely because they are the biggest prescription drug users.
Other rich countries keep prescription drug prices down through some form of government regulation. For example, since 1987, Canadian drug companies have not been able to increase prices of brand-name drugs above the inflation rate. New brand-name drugs cannot exceed the highest Canadian price of comparable drugs used to treat drugs the same disease. For new brand-name drugs that are unique and have no competitors, the price must be no higher than the median price for that drug in the United Kingdom, France, Italy, Germany, Sweden, Switzerland, and the United States.
If a company breaks the rules, the government requires a price adjustment. If the government deems that a company has a deliberately flouted the law, it imposes a punitive fine. Not surprisingly, more than 1 million Americans now regularly buy their brand-name prescription drugs directly from Canadian pharmacies. American drug manufacturers justify their high prices by claiming they need the money for research and development (R&D). The American public benefits from R&D, they say, while lower drug prices impair R&D in other countries.
Their argument would be more convincing if evidence showed that price curbs actually hurt R&D. However, in Britain, where the government regulates prescription drug costs, drug companies spend 20 percent of their sales revenue on R&D. The figure is just 12. 5 percent in the U. S. In Canada, expenditure on R&D has increased 1500 percent since the beginning of government regulation (1987-2002). This hardly suggests that price regulation hurts R&D. What we can say with confidence is that the American pharmaceutical industry is by far the most profitable industry in the country.
In 2001, profit as a percentage of revenue was 18. 5 percent – four times higher than that of all other industries combines. We also know that drug companies spend about half as much on advertising and promotions as they do on R&D. this drives up drug prices. Finally, we know that the pharmaceutical industry depends more on lobbying and political campaign contributions that any other industry. Spending $197 million in 1999-2000, it hired 625 Washington lobbyists, more than one for every affiliate of Congress. Most of the lobbying effort is aimed at influencing members of Congress to maintain a free market in drug prices.
The drug companies’ lobbying efforts has proved only partly successful. In the fall of 2001, States has a system of universal health insurance for a comprehensive range of health-care services (Brym & Lie, 2006). Consumers’ voracious appetites for new drugs continue to grow. Insurance companies may raise copayments for drugs, strike deals with drug companies and employ pharmacy benefit management tactics in an effort to fend off rising pharmaceutical costs. Also, new drugs have very high prices when they initially hit the market, since they have no generic equivalent.
Several developments are fueling the fire under the controversy over drug costs in the U. S. To begin with, it has become common knowledge that pharmaceutical firms tend to price their drugs at vastly lower prices outside the US market. The result is that U. S. consumers and their managed care payers are bearing a disproportionate share of the costs of developing new drugs. Whereas prices in the US are determined by a free market and are mostly limited only by competition, nations such as Australia and Canada put a cap on drug prices that cannot exceed a given amount.
Taking advantage of this discrepancy, generally a 30% to 80% difference, border-crossing U. S. citizens have saved bundles of money on prescription drugs by importing them from Canada. Canadian Internet-based drug retailers have been selling to anyone with a credit card and a faxed prescription. Naturally, U. S. drug companies have raised a disturbance. Many have threatened to limit Canada’s supplies so it only meets the demands of Canadians, as well as putting a corporate embargo on any pharmacy or distributor suspected of selling to Internet companies.
However, the U. S. Government decided to stop interfering. In October 2006, U. S. Customs authorities announced that they would no longer seize individuals shipments of drugs from Canada to the U. S. if they contained no more than a 90-day supply (Plunkett, 2007). Ethical Impacts High drug prices have the most negative impact on the elderly and the chronically ill. The elderly, for example, are usually forced to pay for their prescription drugs, since Medicare does not cover their drug costs unless they are in a hospital.
In addition, the American consumer ends up subsidizing lower drug prices for other countries in which medicine is often available at much lower prices. As a result, many of the industry’s most vocal critics contend that the only solution to this injustice is government regulation. But the major pharmaceutical companies strongly resist any form of regulation as a serious threat to the stability of their powerful industry. This industry has consistently put forward the same arguments for high prices.
These focus on the premise that premium prices are justified due to the excessive costs of developing new drugs. This rationale is based in the most fundamental principle of free market economics; high risk deserves high rewards. Beyond question, there are great risks involved in researching and developing new drugs, especially since such a small percentage make it through the long and costly process. Moreover, even if a drug is a commercial success, there is always the impending threat of product liability problems and expensive law suits.
Finally, the industry maintains that earnings received from breakthrough drugs are necessary to stimulate future research and compensate for many commercially unsuccessful drugs (Tittle, 2000). Conclusion In coming years, taming pharmaceutical costs will be one of the biggest challenges facing the health care system. Prescription drug costs already account for more than 10% of all health care expenditures in the US. Managed care must be able to determine which promising new drugs can deliver meaningful clinical benefits proportionate to their monetary costs.
The good news is that as the demand for new and improved treatments intensifies, so do the abilities of modern technology. In addition to expediting the process and lowering the costs of drug discovery and development, advanced pharmaceutical technology promises to increase the number of diseases that are treatable with drugs, enhance the effectiveness of those drugs and increase the ability to predict disease, not just the ability to react to it (Plunkett, 2007).
References:
Brym, R. J. , & Lie, J. (2006). Sociology: Your Compass for a New World.Belmont CA: Thomson Wadsworth. Callahan, D. , & Wasunna, A. A. (2006). Medicine and the Market: Equity V. Choice. Baltimore: JHU Press. Lee, C. -J. , & Lee, L. H. (2003). Development and Evaluation of Drugs: From Laboratory Through Licensure to Market (2nd ed. ). Washington DC: Informa Health Care. Plunkett, J. W. (2007). Plunkett’s Health Care Industry Almanac 2008: Health Care Industry Market. Houston, Texas: Plunkett Research, Ltd. Tittle, P. (2000). Ethical Issues in Business: Inquiries, Cases, and Readings. New York: Broadview Press.