Few industries have suffered more from success–at least in lost public esteem–than the drug industry.
We have become a pill-happy society, expecting a capsule for everything from heart disease to hair loss. One minute, we applaud the drug companies for their medical breakthroughs. The next, we condemn them for high prices and profits. There’s a love-hate relationship that promises to endure even after Congress approves (as it someday will) drug coverage under Medicare.
Al Gore has caught the spirit. He’s eagerly denouncing the drug companies as too powerful and greedy. Meanwhile, he also promises that “we will find new medicines and new cures not just for cancer, but for everything from diabetes to HIV/AIDS.”
Who is “we”? Well, it’s mainly drug companies. In 1999, their research and development spending totaled $24 billion, which was about 60 percent more than the entire budget for the National Institutes of Health.
More Top Picks Best Leather Gloves For Women
Let’s see. The Pharmaceutical Research and Manufacturers of America, the industry’s main trade group, says companies are now working on 113 drugs for AIDS/HIV, 24 for Alzheimer’s disease, 354 for cancer, 55 for heart disease and 17 for depression. But there’s a dilemma: how to develop costly drugs and keep them affordable?
A stubborn problem is that most experimental drugs fail. They prove ineffective and never come to market. Of those that do, the average development time is15 years, says the trade group. On average, each successful drug incurs development costs (including the expenses of failures) from $200 million to more than $500 million, according to various studies. Some drugs are barely profitable. The industry earns more than half its profits from its best-selling 10 percent of drugs, says economist Henry Grabowski of Duke University.
These are blockbuster drugs like Prilosec to fight ulcers ($2.9 billion in sales in 1998), Prozac to control depression ($2.2 billion) and Lipitor to lower cholesterol ($1.5 billion). The prices of drugs like these could be cut. The government could adopt prices controls. Patent protection, giving an inventing company an exclusive period of sales rights, could be shortened. But if profits drop significantly, future drug development will suffer.
Listening to Gore, you might think that price-gouging had already impoverished many Americans. At the Democratic convention, he produced a 72-year-old woman who “spends over half of her Social Security check–her only source of income–on her pills. So she either skips meals or … buys macaroni and cheese dinners in bulk.”
Despite some undeniable hardship, two recent reports (one from the Kaiser Family Foundation, the other from the Department of Health and Human Services) paint a less hysterical picture:
– Over the years, insurance coverage of prescription drug costs for Americans of all ages has steadily improved. In 1980, patients paid 66 percent of drug costs directly. By 1998, these out-of-pocket costs had dropped to 27 percent.
– Among Medicare recipients (those over 65), more than two thirds had some insurance coverage for drugs in 1996. For those with insurance, out-of-pocket drug costs averaged 1 percent of their income; for those without coverage, it was 2 percent.
– Medicare recipients without coverage still used drugs heavily. They average 16 prescriptions annually compared with 21 for those with insurance. However, there are few differences in health status between those with and without coverage; this suggests possible drug overuse by the insured.
– Generic drugs–costing a third or less than brand equivalents–have helped hold down costs. In 1998, generics accounted for 45 percent of prescriptions, up from 33 percent in 1991. (Generic drugs can be sold once patent rights have expired.)
Of course, problems remain. In a 1997 survey, 5 percent of respondents said they couldn’t afford some needed drug. Then there are “me too” drugs. These are new drugs for, say, blood pressure or allergies that represent slight improvements over older drugs, including generics. But the new drugs sell for much more, driving up total spending.
These problems are ones of success. The reason that Medicare lacks drug coverage is that in 1965, when Congress created the program, drugs–aside from antibiotics and vaccines–simply weren’t so central to medicine. Medicare was modeled after private insurance, and private policies typically didn’t cover drugs. Now, drugs rule. In 1998, pharmacies dispensed 2.6 billion prescriptions, up 37 percent since 1992.
This addiction makes Medicare drug coverage politically irresistible. But it needs to be done with care. If it’s too generous, it will encourage overuse of drugs. If prices are regulated too heavily, it may deter future drug development. And any new drug benefit needs to be coupled with a larger overhaul of Medicare to control total costs.
George W. Bush has tried to skirt these questions. But Gore’s rhetoric, aimed mainly to buy votes, makes honest debate difficult. There used to be a word for his style: demagoguery.