Prescription drug prices are rising much faster than the rate of general consumer inflation. The most heavily affected are those who can least afford it, like older Americans living on fixed incomes, and the working poor with inadequate or no health insurance. The rise in drug prices is causing the public to ask why. The reasons include the immense research costs, consumer advertising and the growth of managed care.
The continue rise in prescription drugs costs has touched off intense public debate on how best people can get some relief. Some politicians and consumer groups have pushed for some form of price controls. Drug companies oppose price regulations. They contend it would restrain innovation in an industry that invests billions of dollars annually on research.
Joe Madera, a retired man in his late 60s living in Pomona, CA, pays more than $250 a month out of pocket for prescription drugs to maintain his diabetes under control. Medicare covers his doctor bills and any hospital visits, but the federal health program does not cover prescription. While this man’s household income is fixed, the cost of his medication just keeps going up.
Most Americans do not feel the increase in drug prices directly because they purchase prescription medicines through their employee health plans or their HMOs, where they do not pay the full price, often making only a $10 or $20 co-payments. The rise in drug prices does hit this group indirectly. Many health insures have blamed higher drug cost as the reason behind hikes in medical premiums or restriction of benefits.
One reason why retail prices are going up is hat the new generation of drugs is expensive to produce. The cost of research and developments are high. Creating a complex, genetically engineered drug versus producing a conventional drug is like the difference between manufacturing a Ford Escort car and designing a fine German Mercedes-Benz. Indeed, the process of taking a drug from the laboratory to the patient is a lengthy one, requiring years and costing millions of dollars. And success is not guaranteed. Often there is a huge difference between how a drug behaves in the test tube and how it acts on humans. New drugs typically require several phases of tests on humans to demonstrate that they work and do not produce serious side effects. Only one medicine out of five makes it through human clinical tests, a representative for the Pharmaceutical Research and Manufacturers of America argue. For the drug companies, these research duds are necessary cost of doing business. The drug makers argue, however, that prices for the one in five therapies that do make it to market must compensate for the costs associated with those that do not. Consequently, the successful drugs have higher prices.
Advertising is another factor why prescription drugs prices are going up. Drug companies spend millions of dollars in advertising and promotion in order to influence treatment decisions. Physicians are bombarded by information aimed at convincing them that a particular drug is the best. Soon, these new treatments became the accepted standard practice. And even when equally effective drugs that cost less are introduced, doctors rend to continue giving their patients the most expensive medicine, which means prices remain high. In recent years, drug companies have boosted efforts to pitch their products directly to consumers in TV, radio, magazines and newspapers ads to create brand-name awareness. According to a study by the National Institute for Health Care Management, the 10 most heavily advertised drugs accounted for about 22% of the total increase in drug spending in the last five years. “The most heavily advertised drugs are the ones whose price increased the most,” the Institute affirmed.
Drug inflation is also caused by the rise of managed care. According to Los Angeles Times newspaper, managed care now covers 60% of the insured population in the United States and even higher percentage in California. Large HMOs and other managed care plans use their bargaining power to demand discounts when they make bulk purchases of prescription drugs. As result of that, pharmaceutical companies have tried to regain some of this lost revenue by charging more to people without drug coverage who must pay full retail prices. This practice is knows as cost shifting.
The nonstop rise in prescription drug cost has affected many people; especially older Americans who live on fixed income. People whose health depends on special medications are the most affected by this trend. Are there legitimate reasons behind this trend? Many people ask. The pharmaceutical industry is one of the most profitable industries in America. So are drug prices inflated? Joe Madera, like many other older Americans is fed up. “The situation is really discouraging,” he says. The Federal government needs to step up and impose some kind of price control. In addition to that, politicians have to find the way to give to people like Joe Madera some relief.