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Stones & Bone / health care / volume 11 number 4, April 2009 DOSE OF REALITY Now being considered by Congress, the Medicare Prescription Drug Savings and Choice Act of 2009 (HR 684 and S 330) will allow Medicare to negotiate drug prices with the pharmaceutical industry in the same fashion as does the Veterans Administration. This will save taxpayers and Medicare beneficiaries a great amount of money, and it will decrease industry profits. Should a person feel sorry about the loss to this industry? Consider the following facts, primarily gathered for and now taken from my book, Mired in the Health Care Moras. Worldwide, the pharmaceutical industry is a financial giant with $400 billion in sales, and the American consumption of prescription drugs accounts for half of that. It is the most profitable of all industries in the United States, with profits equaling 25 percent of sales. Big Oil isn’t even close. In 2001, the ten American drug companies in the Fortune 500 had the highest net return, 18.5 percent of sales, whereas the median net income of all Fortune 500 companies that year was only 3.3 percent. In 2002, the combined profit for these ten companies ($35.9 billion) was more than that of all the other 490 Fortune 500 companies together, $33.7 billion. The five European pharmaceutical giants—GlaxoSmithKline, AstraZeneca, Novartis, Roche, and Aventis—had similar profits. From 1980 to 2000 drug sales in the United States tripled, and in 2001, the drug companies had the largest lobby in Washington. Its 675 members outnumbered the members of Congress. In 2002, 26 of these lobbyists were former members of Congress, and 342 had been congressional staffers or had been otherwise connected with government officials. In 2000, drug company expenditures for marketing and administration amounted to 36 percent of sales income, but only 14 percent of income went to research and development. Thus, the expenditure for marketing and administration was two and a half times that for drug research and development. Also, of seventy-eight drugs approved by the Food and Drug Administration (FDA) in 2002, only seventeen contained new active ingredients, and only seven were classified by FDA as improvements over older drugs. Not one of these improved products came from a major drug company. So, going by the numbers, the truth is that big pharmaceutical companies are primarily marketing machines. Their high profits and large marketing costs are the true reasons that the public has to pay such high prices for pharmaceuticals. It is not due to the need to cover the cost of developing new drugs. The lifeblood of the major pharmaceutical companies is the monopoly that the government confers to them in the form of patents. In the United States, for a drug to earn approval, the Food and Drug Administration does not require that a drug work better than one already approved for a particular disease or condition, only that it work better than a placebo. A drug might undergo several clinical trials that do not demonstrate that the drug is better than a placebo, yet receive FDA approval if only one or two other trials do! At any one time, approximately 80,000 clinical trials are underway. The big drug companies usually contract with private companies, called contract (or clinical) research organizations (CROs), to establish networks of physicians who are paid to administer the drugs and collect the required information. Worldwide, approximately 1,000 CROs are in operation, and they do a $7billion business annually. The involved physicians make money as well: most of the tested patients receive some money, but the doctors do much better, receiving an average of $7,000 per patient. In one trial participating physicians were paid $12,000 for each enrolled patient, plus another $30,000 for the sixth patient enrolled. New Zealand and the United States are the only countries that allowdirect-to-consumer advertising of medical products. The European Economic Community expressly requires each of its member states to prohibit advertising of prescription drugs, and also to prohibit the giving of free drug samples to consumers—another form of direct-to-consumer advertising. Direct-to-consumer advertising is so effective in the United States that the top thirteen pharmaceutical companies spent a total of $13.8 billion just on this effort in 2004 and again in 2005. That is less, but not much less, than the $16 billion in the annual budget of the nation’s space program, so this is indeed a massive effort. In 2005, the top spenders were Johnson & Johnson ($2.2 billion), GlaxoSmithKline ($2.2 billion), Pfizer ($2.1 billion), and Novartis ($1.2 billion). The prescription and over-the-counter drug business is particularly profitable in the United States where, unlike in other countries, drug prices and profits are not regulated. In countries where prices are regulated, the drug cost to consumers is typically half that in the United States. Big Pharma’s high profitability depends in large part on this unregulated market, so the industry wants no changes. Obviously, the pharmaceutical industry is not enamored of the provisions in the Medicare Prescription Drug Savings and Choice Act of 2009 that allow Medicare to negotiate drug prices. After reading the above facts, however, can any consumer feel sorry for the industry if Congress passes the act? | ||
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