Why Do Drugs Cost So Much?

Last week, while most people were focused on the debt ceiling debates, Congress also was arguing about health care costs.

Economists tell us that much of the nation’s economic woes, from the growing budget deficit to the slow growth of jobs, is tied directly or indirectly to out-of-control health care costs. This problem is affecting all of us, including those diagnosed with mesothelioma and other asbestos-related disease. Rising medical costs not only make medical care harder to obtain; they are also weakening the U.S. economy.

Last month this blog discussed the fact that health care costs in the United States are higher than in any other nation in the world, and those costs are rising faster than in another other nation in the world. And this is not, as some would like to believe, because our health care here is so much better. By many measures — such as waiting time to see a doctor, treatment of chronic conditions, life expectancy, and mortality rates for infants and children — many other nations are doing a better job of providing health care for their citizens, and doing it at much less cost.

There is no starker example of this than the cost of prescription drugs. Americans pay, on average, twice as much as people in other nations for exactly the same drugs. This was the finding of a 2010 hearing by a Senate Special Committee on Aging, and the Senators wanted to know why. So, letters were sent to the pharmaceutical corporations AstraZeneca, GlaxoSmithKline, Eli Lilly, Novartis, Pfizer, and Sanofi-Aventis to ask about their price discrepancies.

Now the responses are back and have been compiled in a report released last week. In brief, the single biggest reason drugs cost less in other countries is that other countries have legislated price controls on drugs. The United States has not. So in the U.S., drugs cost whatever the market will bear.

U.S. pharmaceutical companies have argued for years that their drugs have to be priced high enough to pay for research. But when pressed to produced hard information on how much of the price of drugs is actually needed to pay for research, the companies were evasive.

One company did provide a detailed breakdown on the costs behind one family of drugs available in both brand name and generic form. These drugs are priced at nearly 33 percent over cost in the U.S. market, and most of the costs of producing the drugs were related to marketing, not research. The report concluded,

“None of the data received demonstrated a direct relationship between prices charged and the costs of manufacturing, distribution, or research and development. Across the board, the largest expense category was always marketing. …

… we have learned that drug companies charge prices based mostly on what the market will bear without strong pushback from purchasers, and less on what the drug costs to develop, market or manufacture.”

The Senate’s report also notes that “while the U.S. represents the world’s most profitable pharmaceutical market, almost all of these companies employed the majority of their workforce in foreign countries.”

This entry was posted on Sunday, July 24th, 2011 at 2:36 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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