-Caveat Lector-
The MoJo Wire
Legal Drug Pushers
The best argument for single-payer healthcare? Pharmaceutical company
profiteering.
by Maria Tomchick
July 14, 1998
Healthcare costs in the U.S. are the highest in the world because of an
inefficient private system that ensures profits for hospitals,
blood-sucking middlemen (insurance companies), and drug companies.
Especially drug companies.
Pharmaceutical corporations are among the most profitable companies in
the U.S. As an industry, they have the highest returns on revenue (their
profits as a percentage of their total revenues), meaning that they take
enormous markups on their products. Literally, they charge "what the
market will bear," which is quite a lot if you have a severe illness and
need pain killers, or better yet, a terminal illness that can be
arrested with a pill (or lots of them). In other countries with national
healthcare, governments have enacted price controls on drugs to limit
skyrocketing costs, because the government has to pay for the drugs. Not
so in the good ol' USA. Drug Price
... U.K. 96* U.S. 96** U.S. 98***
Zocor 10mg (Merck) $1.06 $1.95 $2.10
Claritin/Clarityn 10mg (Schering-Plough) $0.41 $1.94 $2.14
Zyrtec/Zirtek 10mg (Pfizer/UCB Pharma) $0.48 $1.71 $1.81
Pravachol/Lipostat 10mg (Bristol-Myers Squibb) $0.95 $1.76 $1.92
Ritalin 100mg (Ciba) $0.31 $0.47 $0.53
Retrovir [AZT] 100mg (Glaxo Wellcome) $2.04 $1.55 $1.59
Videx 25mg (Bristol-Myers Squibb) $0.78 $0.37 $0.42
Hytrin 2mg (Abbott Labs) $0.73 $1.27 $1.45
*From British National Formulary no. 32 1996
**From Drug Topics Red Book 1996
***From Drug Topics Red Book 1998
Note: Prices listed are the pharmacist's wholesale cost per pill, and do
not reflect what the consumer might pay. Research by Mat Honan
Instead, you and I pay two times, three times, sometimes 10 times more
for our medicine than people do in Canada, for example. This year,
wholesale drug prices in the U.S. soared a record 10.7 percent in the
month of May alone, then climbed another 3.2 percent in June.
How do pharmaceutical companies explain the high prices? They blame them
on the cost to research and develop new drug therapies. R&D is
expensive, but not as expensive as they want you to believe�certainly
not as expensive as the cost to promote, market, and sell these drugs to
hospitals, HMOs, and an estimated 600,000 prescribing physicians. On
average, companies spend about $200 million to develop a new drug
therapy (which includes all the tests and trials of drugs and chemical
combinations that never prove useful). The last time Congress checked,
back in 1991, annual R&D costs for U.S. pharmaceutical companies totaled
$9 billion, yet drug companies spent more than $10 billion per year just
to promote their products in the private marketplace�and that cost has
only grown since then. In 1997, Bristol-Myers Squibb alone spent $1.4
billion on R&D, and a colossal $2.2 billion on advertising and
promotion.
Why do drug companies need to spend so much money pushing their
products? If the need is there, doctors will prescribe it, right? Not
true. More than half of the new drugs developed every year are not
designed to treat new or untreated conditions, but to compete with drugs
that are already on the market. Called "me-too" drugs, these are easier
and cheaper for companies to develop, because much of the basic research
on how the drug should work in the human body has already been done�it's
just a matter of finding a new, slightly different compound in the same
class as the old drug. For the company to patent and market it, the new
drug needs to be different, and if it is stronger and has different
side-effects (hopefully fewer and less severe, but not always), so much
the better.
The motive behind the "me-too" phenomenon is simple: as a drug that's
been on the market for a number of years gets close the expiration of
its patent, the company that owns the drug starts to panic. Once the
patent expires, other companies can make generic versions of their
best-selling, proprietary drug�thereby forcing the price down. The
company has to find a new, different, more powerful drug to replace it.
Of course, when the new drug hits the market, the company has to spend
millions to persuade doctors to stop prescribing the old, cheaper
medication and switch their patients to the new one. It's an endless
cycle of skyrocketing costs fueled by the immoral, for-profit nature of
the U.S. healthcare system.
We're always hearing about HMOs, hospitals, and insurance companies
seeking ways to cut costs, and keeping down the cost of prescription
medications is part of that process. But while it's becoming harder for
drug companies to sell expensive new "me-too" drugs to doctors, there's
a new promotional cost in the equation: They've started pushing their
wares directly to consumers. In 1996, drug companies spent $600 million
on direct advertising to consumers, which is twice what they spent in
1995 and almost ten times more than in 1991. Direct-to-consumer
advertising of prescription drugs is banned in most other nations, and
the World Health Organization's Ethical Criteria for Medicinal Drug
Promotion expressly forbids it.
Direct-to-Consumer Prescription Drug Advertising
Company 1995 DTC advertising 1997 DTC advertising
Bristol-Myers Squibb ... 107.3
Merck & Co. 26 122.0
Pfizer ... 90.0
Schering-Plough 31 70.9
Johnson & Johnson 23 56.5
American Home Products 27 42.8
Pharmacia & Upjohn 55 ...
Eli Lilly & Co. ... 25.6
Source: Competitive Media Reporting
Note: All figures are in millions of dollars. Research by Mat Honan
Yet U.S. pharmaceutical companies are buying more billboards and TV
time, and pushing more aggressively for their medicines to be switched
from prescription-only to the over-the-counter market, so consumers can
be free to self-prescribe. More drugs were switched to over-the-counter
status in 1997 than in the previous five years. Since 1986, the FDA has
approved only 33 over-the-counter switches; over a third of those were
done in 1995 and 1996. And in August 1997, the FDA finally gave in to
drug company lobbyists and released new criteria for the advertising of
drugs on TV, making it easier for drug companies to hock their wares
directly to patients.
In addition to marketing costs, pharmaceutical companies take huge
markups in devious ways. Most drug companies belong to a larger holding
company that also owns a chemical company. The chemical company can make
the drug chemicals in its own plant, then "sell" them to its sister
division, the pharmaceutical company, at a high markup; this is called
"transfer pricing." When consumers complain about prices, the
pharmaceutical company then points to the high price it had to pay for
"raw materials"�but they bought the chemicals from themselves and
manufactured the high markup.
In addition to padding their own pockets, pharmaceutical companies still
get a special tax credit (subsidy) from the U.S. government (U.S.
taxpayers) when they manufacture the "raw materials" into pill form. The
Section 936 tax credit applies to any company that sets up a
manufacturing plant in Puerto Rico. Other industries have benefited from
this tax credit too, but by the early '90s drug companies were
collecting more than all other industries combined. This little loophole
is being phased out, but it still saves the pharmaceutical industry over
a billion dollars every year.
So beware of brand new, expensive drugs�the high cost is not an
indication of efficacy. And when your doctor writes you a prescription,
ask him how much it's going to cost you. Ask him if there's a generic
drug that will do the same thing, or an alternative treatment that will
be effective without the need for you to take a pill and support a drug
company.
And remember that, for those of us who have serious conditions that need
drug treatment on a continual basis, our private healthcare system
really fails. Chronically ill people often can't afford high drug
prices, and end up suffering needlessly when they ration their
medication or are forced to stop taking it. For their sake, if for no
other reason, we need a single-payer system and a limit on drug prices.
Maria Tomchick is co-editor of Seattle's shamelessly biased political
weekly Eat The State!, as well as a self-proclaimed "pinko" and a
perpetual student of kung-fu. She is not Xena but she wouldn't mind
wearing some of that leather.
Additional reporting by Mat Honan.
For more on the delightful pharmaceutical industry, check out the source
of many of the statistics in this article: "Bitter Pills: Inside the
Hazardous World of Legal Drugs" (Bantam Books, 1998) by investigative
journalist Stephen Fried.
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