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American Pharmaceutical Association

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Sevon Associates

By Anne Federwisch
May 13, 1999
Photo by Margie Paschke/William Jacoby

While new drugs like the arthritis pain reliever Celebrex (celecoxib) and the diabetes treatment Rezulin (troglitazone) grab headlines, many patients struggle behind the scenes to cope with the cost of basic prescription medications.

"There is a problem, especially with the elderly on a fixed income who are trying to pay for medications, and it comes down to a choice between food or medications," said Susan Winckler, RPh, director of policy and legislation for the American Pharmaceutical Association, which represents pharmacists in all areas of practice.

Explanations for rising drug costs can be as complicated as the pharmaceutical formulas themselves. The brand-name pharmaceutical industry blames research costs and inadequate patent protection. The generic-drug industry blames the brand-name industry. Consumer advocates point to profits and pricing structures.

With such disagreement over cause, achieving consensus on a solution remains elusive. Meanwhile, nurses and pharmacists often get caught in the middle, trying to deal with patients’ anger over costs while trying to encourage compliance with drug regimens.

Least able pay the most

While more than 65 percent of adults over age 50 use prescription drugs, not everyone pays the same price. "There’s a spectrum of markets in this country. Different people pay different prices for the same drug," said Larry D. Sasich, PharmD, MPH, a pharmacist with Public Citizen, a research-based consumer advocacy group cofounded by Ralph Nader in 1971.

Those who can collectively bargain for a lower price, such as managed care organizations and the federal government, get the best deals. The people who bear the highest prices are those who pay out of pocket. Often that’s the elderly, Sasich said. "They’re naked out there in the marketplace," he said. Medicare doesn’t cover the cost of most outpatient prescription drugs. Pharmaceutical companies’ profits need to be controlled if prices are to come down, Sasich said.

Defining the problem

But portraying pharmaceutical companies as greedy villains out to squeeze profits from the most vulnerable in a prescription drug war is unfair, said Meredith Mayo, spokesperson for PhRMA, the Pharmaceutical Research and Manufacturers of America. Though total expenditures for drugs rose 15.7 percent in 1998, drug prices went up only 3.2 percent, she said. Increased use of medications accounted for the other 12.5 percent increase.

"The value of pharmaceuticals and the cost-effectiveness of these therapies get lost in the debate," Mayo said.

Lengthening patent protection—the amount of time a drug can be sold without competition—could help manufacturers recoup research and development expenses over a longer time, subsequently bringing down prices, Mayo said. The 20-year patent clock starts ticking before a compound ever reaches the market, leaving only about 12 years of exclusivity. Companies spend approximately $500 million on research and development for each new drug, Mayo said, and only three of 10 generate more income than the companies’ initial investment.

Another solution?

But not everyone believes that increasing patent protection would help. The Generic Pharmaceutical Industry Association (GPIA) says prescription drug costs are high because brand-name manufacturers try to thwart competition from generic companies. Since generics generally cost 25 to 80 percent less than their proprietary counterparts, customers would be the ultimate winners, said GPIA spokesperson Diane Dorman.

However, pharmaceutical companies must be allowed to make a profit, Mayo said. "There would never be a generic industry without the brand-name industry," she said. If manufacturers don’t make an adequate profit, they can’t put 20 percent—about $24 billion—back into research. No research, no new drugs, she said.

But new doesn’t necessarily mean better, Sasich said. "As a country, we tend to buy every new drug that makes it to the marketplace, whether or not it’s any safer or more effective than older, less expensive generic drugs," he said.

The new arthritis pain reliever Celebrex is a classic example, said Mary Sevon, MBA, RPh, president of the pharmacy benefit consulting firm Sevon Associates. "It’s basically replacing [less costly] generic non-steroidals," she said. With 2.5 million prescriptions in its first 13 weeks on the market, Celebrex has reached celebrity status, second only to Viagra in overall popularity.

Consumer culpability?

Consumers also play a role in rising drug expenditures. Shielded from true costs of prescription medications by their health plans’ drug benefit, Americans have become cavalier in their pill-popping since they don’t view the money as coming from their own pockets, experts say. Consequently, HMOs’ cost for prescription drug coverage has increased 56 percent from 1993 to 1997, Sevon said. To stem their losses, health plans are increasingly restricting their formularies and introducing differential copayments, which charge consumers more for brand-name drugs than generics.

Sevon said that she doesn’t know if differential copayments alone will have a significant impact on drug expenditures. "People always want the newest and greatest and best, yet they don’t want to pay higher premiums," she said. "You can’t have one without the other."