News Intelligence Analysis
From the Center for American Progress
PRESCRIPTION
DRUGS
The
Medicare Savings Mirage
So much for all that talk about the president's new Medicare bill making health care more affordable. A new study commissioned by the AARP shows price increases have "negated much of the savings promised to Medicare beneficiaries," because drug manufacturers "are offsetting discounts with prices that are higher than they otherwise would have been." According to the study, drug companies "increased their prices for prescription drugs by three times the general rate of inflation last year - a trend that has continued since President Bush signed legislation adding drug coverage to Medicare." Pfizer Inc., Bristol-Myers Squibb Co. and other drugmakers "raised prices in the first quarter [of 2004] almost seven times as fast as producers of all U.S. goods." The worst part? The price hikes come following a year in which U.S. prescription-drug sales grew 11.5 percent, including average profit margins upward of 14 percent, among the highest of any U.S. industry. The Bush Medicare bill, which allows HMOs to "raise or lower discounts on a weekly basis," promises to make this a continuing problem for the nation's beneficiaries. (You get what you pay for: follow the money trail with the American Progress backgrounder "Paying to Play: Health Care Companies, Campaign Contributions and Medicare Drug Discount Card.")
PROFITS AT EXPENSE OF PATIENTS: Besides raising prices, Time Magazine reports on another way one of America's most profitable industries is maximizing profits and endangering patients. "Two recent cases involving off-label sales of prescription drugs, Neurontin and Paxil, are rekindling debate about whether drugmakers are generating profits at the expense and health of consumers." The New York Times reports that pharmaceutical companies are using a "shadowy system of financial lures... to persuade physicians to favor their drugs." Federal prosecutors are now investigating "whether drug companies are persuading doctors often through payoffs to prescribe drugs that patients do not need or should not use or for which there may be cheaper alternatives."
PROFITS AT THE EXPENSE OF PATIENTS, PART 2: A new study shows pharmaceutical price gauging has a real effect on America's seniors. The study, published Friday in Medical Care, shows "Senior citizens who did not follow their prescribed drug regimens because they could not cover the costs were 76% more likely in the long run to have an overall 'major decline in health' than elderly patients who followed their doctors' orders." Lead author Dr. Michele Heisler said, "A lot of critics are saying it's too expensive to provide or improve drug coverage, but studies like this show that the downstream costs from adverse health outcomes later may be more expensive."
THE R&D MYTH: Senior Harvard lecturer Marcia Angell deconstructs the research and development (R&D) myth in this month's New York Review of Books. Drug companies generally justify their high profit margins by touting the money they spend on new drugs for patients, but according to Angell, "The prices drug companies charge have little relationship to the costs of making the drugs and could be cut dramatically without coming anywhere close to threatening R&D." She points out that for America's top ten pharmaceutical companies, R&D amounted to only 14 percent of sales in 2000, far less the 36 percent which went towards "something usually called 'marketing and administration.'" And she claims most drug companies no longer rely on their own research for new drugs anyway, mostly leaching from academia, small biotech startup companies, and the National Institutes of Health (NIH). Far from an "engine of innovation," the pharmaceutical industry is a "vast marketing machine. Instead of being a free market success story, it lives off government-funded research and monopoly rights."
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