The Price of Prescription Drugs

Here in the U.S. we have a problem. Prescriptions are being written on a daily basis to people who cannot afford to fill them. Prescription drug prices are extremely high and could be lowered. Of all industrialized nations only the U.S. has no government regulations on drug prices. Currently, pharmaceutical companies make more than 50% of their profit from Americans. “A prescription doesn’t do the patient any good if they can’t get the medication”, (Meadows, 2005, p. 24), says Susie Gray, volunteer patient advocate. There are several ways to both lower the prices of prescription drugs and lower patient costs.

Currently, Americans pay the highest prices in the world for prescription drugs (Healthcare economics, 2006). Between 1994 and 2004 population increased 12% while prescription sales increased 68%. The prices of prescription drugs in that same period increased 8.3% per year. This is more than triple the rate of inflation. Prescription drug companies were the most profitable industry from 1995 to 2002 (Prescription drug, 2005). People are being prescribed more and more medication while prices continue to rise at ridiculous rates. This leaves people to look for cheaper alternatives. There are approximately 45 million people without health insurance in this country and many of the uninsured or underinsured do not get necessary prescriptions filled due to cost. Of those uninsured and underinsured who do fill their prescriptions, many skip doses or take smaller than prescribed doses. This causes medication to be less effective which, in some cases can be deadly.

Drug prices could be cheaper. There are methods currently being used in other countries that, if used here, would lower prescription drug prices. These include:

• Government restrictions on pricing and price increases
• Government mandated price cuts
• Reference pricing: this involves setting prices based on the lowest priced drug within each class, thereby, lowering high costs of drugs within each class
• Manufacturer rebates offered to insurance companies that restrict access to other company’s drugs
• Competitive bidding, which already is in place for generic drugs but, could help lower prices if used for brand names as well (Healthcare economics, 2006, p. 56).

Curt Furberg MD, PhD, professor of public health sciences at Wake Forest University School of Medicine estimates that drug costs could be reduced by 30-50% by implementing these methods and using more generics (Healthcare economics, 2006). Currently the Food and Drug Administration (FDA) does not regulate prescription prices, only which drugs make it to market. If they began to regulate prices, cost could be lowered. The government could also step in and pass laws to regulate and, in turn, lower prices.

From another perspective, there are things patients can do to lower their costs. The first is to shop around, prices vary greatly from one pharmacy to another. Next, for patients with low incomes, many states have prescription assistance programs and drug companies sometimes offer free or discounted medication. A temporary solution can be samples. Drug companies give free samples to doctors for the purpose of having a patient try a drug for a couple of weeks before buying it. “Samples are a marketing tool”, says Michelle Meadows (2005, p. 22). Many doctors use these samples for patients who cannot afford their drugs. There is a problem with this though, samples are normally for relatively new, expensive drugs. Once the samples run out the patient is left with the cost of the drug.

If none of these options offer a solution there are still other ways to help lower costs. Patients can request and use generic medication when available. “In 2004 the average price of a generic drug was $28.74 while the average brand-name drug cost $96.01”. Another option available to patients is pill-splitting. This involves the doctor prescribing twice the needed dose then, the patient splits the pills in half. The cost of medication comes from research and development (R&D), marketing, and packaging, not dosage. A higher dose does not normally cost much more than a lower one so, pill-splitting can cut costs by as much as half. Some insurance companies are even beginning to encourage pill-splitting for some medications . Unfortunately, this only works for some medications; many are time released or capsules that cannot be split. Yet another option is buying drugs from other countries such as Canada. Based on a study of the 44 most prescribed medications, patients could save 24% by buying from Canadian online pharmacies instead of American online pharmacies. In fact Americans can save an average of $44.31 when purchasing the top four selling drugs through Canadian internet pharmacies (see Figure 1). These are huge savings and buying from Canada can help people obtain drugs the otherwise may not be able to get. The FDA does warn though, drugs from other countries have not been review by the FDA. If buying drugs from other nations you run the risk of getting medication that is completely incorrect or the wrong dosage. Since you have no way of knowing exactly what you are getting from other countries this can be dangerous.

For seniors, there is the new Medicare Part D program. This began as the Medicare Modernization Act of 2003 and took effect January 1, 2006 according to Estimates of Medicare (2004). Under the new plan, seniors pay a $250 deductible then Medicare covers 75% of prescription costs up to $2,250. Patients must then pay 100% up to $5,100. Once reaching $5,100, Medicare pays 95%. Since, before this program, seniors had no prescription coverage through Medicare, this can greatly reduce their costs. Medicare patients are expected to pay about 37% less for prescription drugs. Low-income patients will receive further benefits, reducing their costs by as much as 83%. On the down side about one in four seniors will have higher out-of-pocket expenses under the new plan as stated in Estimates of Medicare (2004).

Even though Medicare Part D is a good program, it has had its problems. Many seniors are confused by the plan or simply do not understand it at all. In Drug Plan Confuses (2005), it was found that about one in five seniors planned to participate. 43% were still unsure of what they would do. “37% said they do not want new coverage” . The plan pairs seniors with private insurance companies and each state has several plans to choose from. California has 47 different plans alone. With so many choices it is understandable that seniors are so confused. The computer program behind the Part D plan has experienced problems as well. Computer program problems include system crashes that have kept seniors from online enrollment and inability to match seniors with their benefits online. This has caused seniors to not have access to benefits and kept them from getting prescriptions filled. Most of the computer glitches happened when the program first went into effect and have now been resolved.

As drug prices and the numbers of new prescriptions continue to rise, drug companies are still trying to lure new patients. They do this using direct-to-consumer (DTC) advertising. We are bombarded by drug ads on a daily basis. They are on the television we watch, in the magazines we read and a variety of other places. These ads encourage us to ask doctors for medications and doctors normally comply with prescriptions. In 2003 drug companies spent $3.2 billon on DTC advertising. Of the 50 most advertised medications, sales increased 32% while all other drug sales only increased by 13.6%. Some people feel DTC is a good thing, encouraging patients to make knowledgeable decisions about their health. On the other hand, some people feel DTC advertising can result in over prescribing of unneeded remedies. DTC advertisements are also biased in the way they present information about their drugs. Donna Young (2005) claims, “most DTC advertisements use language understandable at a sixth- or seventh-grade level to discuss benefit information, while risk information is presented at the ninth-grade level” . “The primary goal of DTC advertising is not your personal health and wellbeing; it is to boost the bottom line of the pharmaceutical companies that pay for it”, says Krisha McCoy. Some feel DTC advertisements lead people to self-diagnose their ailments. But, even if self-diagnosing is happening patients must still go through a doctor to be prescribed a particular medication . The Pharmaceutical Research and Manufacturers of America (PhRMA) have put out “Guiding Principles”. These are voluntary guidelines for drug companies when it comes to DTC.

The new PhRMA guidelines went into effect in January 2006. Here are some of the key provisions:

• Advertisers should no longer use “reminder” advertising to promote prescription drugs on television. “Reminder” ads are those ads that mention the name of the product, but don’t tell you anything about what it does….
• All new DTC television advertising should be submitted to the FDA before it is broadcast…
• When a new drug is released, advertisers should hold off before launching a DTC campaign…
• DTC television and print advertising should make it clear that an advertised drug is a prescription drug
• Advertisers should also respect the seriousness of the health conditions and medicines being advertised….

Although these are “voluntary guidelines” some states require their use.

Not everyone agrees that drug prices are too high. Pharmaceutical companies say high drug prices are necessary. Most often drug companies claim research and development costs as a reason for high prices. “For instance”, says Omudhome Ogbru (n.d.) “only one out of every ten thousand discovered compounds becomes an approved drug for sale…. In addition, it takes about seven to 10 years and an average cost of 500 million dollars to develop each new drug.”  Drug companies are not doing as well as they once were. Many brand name medications will soon be losing their patents and most companies do not have enough new drugs in the works to replace them. Due to so many new regulations pharmaceutical companies are doing less research then ever before. This curbs the development of new drugs. For these reasons, and some others, investors are starting to back away from drug companies as well . All these things will make drug companies less profitable in years to come. Prescription drug cost increases are expected to be exceeded by other health care cost increases for the first time in four years. Once viewed as public’s main villain, pharmaceuticals are now being looked past as people focus more attention on oil and tobacco companies. Pharmaceutical manufacturers also give to charity and give free medications to low income people and countries. Some profit by drug companies is necessary, as for all companies. The profit keeps investors interested and provides a reason to make new medications. Omudhome Ogbru (n.d.) goes on to say “Since many drugs reduce pain and suffering, prevent disease, or extend life, they should be seen as miracles.”.

If the main reason, according to drug companies, for high drug prices is research and development costs then the question is would research and development decrease if drug prices were reduced? According to Would Lower Prescription (n.d.) it would not and here are ten reasons why not:

• New drug discoveries are much cheaper than the industry claims…
• Huge profits allow for price elasticity…
• Lower prices will induce demand…
• Drug companies will shift priorities…
• Experience in Europe: to control cost European countries either impose price controls or limit drug company profits…
• Future research costs will decline…
• Industry R&D risks a significantly reduced by taxpayer-funded research…
• Drug company advertising is growing faster than R&D…
• Price cuts could foster more innovation…
• R&D is the drug industries lifeblood…. (Would lower prescription, n.d. para. 1)

So, if prescription prices being reduced would not affect research and development, then drug companies should be able to lower them some. If prices were lower, the uninsured and underinsured would feel a difference, but would the drug companies truly be hurt that much? Pharmaceutical companies now make huge profits. The drug company Pfizer has $17.5 billion in cash on hand. Is this truly necessary? Their research and development budget is only $7 billion and out of the top 25 selling drugs in the world, Pfizer owns patents on 14 of them. This includes Lipitor, which has the highest prescription rate in the world. How much would lowering prescription prices really hurt big pharmaceutical companies like Pfizer?

There are many ways that both the prices of prescription drugs and consumer costs can be reduced. There are many state, federal, and drug company programs to aid in getting discounted or free medications. The government could step in and set regulations that would lower prices, or the FDA could begin to regulate prices. Shopping around or using internet or foreign country pharmacies can help locate cheaper drugs. Patients can also use over the counter medications and generics when available. We, as Americans, have options have many options for lowering our own costs but, we need to take a stand for lower drug prices.