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Drug Companies & the Pharmaceutical Industry 
Drug Companies
Drug Companies develop, produce, and market drugs licensed for use as medications, providing generic and brand medications.
The nine largest drug companies raked in $30.6 billion in 2001 profits. During the past decade, drug firms’ profits represented an 18.5 percent return on revenue or 5.6 times the median return (3.3 percent) of Fortune 500 companies. As the economy soured further in 2002, many drug companies continued to grow and thrive.
So, do you think that your friendly doctor and the drug companies are trying to help you improve your health by convincing you to take more and more drugs?
Conflict of Interest?
Visit any doctor's office and you'll see drug reps giving doctors samples to promote their products. Drug companies are known to lobby doctors and health care providers but until now there was no way to find out how much money doctors were being paid by pharmaceutical companies.
Diabetes treatment costs more than any other disease (over $132 billion annually), but diabetes treatment also generates the most revenue for the healthcare industry (over $210 billion annually!). Is this a conflict of interest for an industry that is more focused on a “sick” care strategy that creates drug- dependent patients – instead of a “health” care strategy that cures the actual ailment or disease?
Your doctor makes money when you pay for the appointment. Your doctor makes more money when the drug company pays him to "push" their drugs. And, you pay for the drugs and the doctor appointment. So ... how's that workin' for ya?
Are you getting better? Do you find yourself spending more money for the drugs? Have you discovered that you're taking more drugs today than you were taking just 3-5 years ago? And, you're spending more money for the drugs, the doctors, the hospitals, the health insurance. But, in the meantime, your health continues to go downhill!
WAKE UP, PEOPLE!!
Pharmaceutical companies have readily admitted that they routinely pay insurance companies to increase the use of their products and to be added to the recommended list of drugs. They admit that they give rewards and kickbacks to both pharmacists and doctors for switching patients from one brand of medication to a rival. And, they admit that they provide all sorts of gifts and gratuities to doctors, ranging from financial aid to educational programs to bags and writing pads, to encourage doctors to prescribe their brand of drugs.
If you are concerned with your doctor “pushing” drugs onto you, consider asking if he/she receives any financial gifts or benefits from the drug manufacturer. Such questions are uncomfortable, but ethical questions often are -- and they may be more uncomfortable for your doctor than for you.
Otherwise, go to www.naturopathic.org to contact a naturopathic doctor who subscribes to the motto “Doctor do no harm.”
Doctor Kickbacks: Getting Paid by the Drug Companies
Most people have gotten a doctor's prescription at some point in their lives for a medicine they have needed. Some people need prescription medication on a regular basis due to their medical problems. The question is, to what degree can you trust that your doctor writes a prescription based only on your best interests as a patient?
That seems like a strange question - after all, what else would a doctor have in mind? Shouldn't the doctor's choice of medication depend solely upon what your needs are as a patient? That does sound like the way things should be, but recent revelations suggest that something very different is going on: pharmaceuticals companies may be exercising undue and unethical influence on doctors and what doctors prescribe.
Drug makers have readily admitted that they routinely pay insurance companies to increase the use of their products and to be added to the recommended list of drugs. They admit that they give rewards to both pharmacists and doctors for switching patients from one brand of medication to a rival. Finally, they admit that they provide all sorts of gifts and gratuities to doctors, ranging from financial aid to educational programs to bags and writing pads, in the hopes that they will encourage doctors to remember and perhaps prescribe their brand of drugs.
Not everyone approves of such actions. In October of 2002, the Department of Health and Human Services stated that many gifts and gratuities are suspicious because they looked like illegal kickbacks. Various consumer groups such as the AARP have expressed their support for further restrictions on such gifts, and the government is considering implementing such restrictions.
Unfortunately, further restrictions may be unlikely because the consumer groups are vastly outnumbered by doctors, insurers, and of course drug companies who have flooded the government with letters criticizing proposals to restrict gifts. Perhaps the first impression about giving gifts is mistaken and there are good reasons for them - so, what arguments do the companies use in their defense?
It seems that the most common defense is that the practice of giving gifts is, well, common. According to Solvay Pharmaceuticals, "a policy statement that declares well-established commercial practices potentially criminal creates a chilling effect on commerce and ultimately harms all consumers." A a coalition of 19 pharmaceutical companies, including Pfizer and Eli Lilly has said proposals to restrict gifts were "not grounded in an understanding of industry practices."
The recipients of the gifts agree. According to the American Association of Health Plans, representing most of the nation's H.M.O.'s, the proposed changes would "cast doubt on the propriety of many well-established practices undertaken by health plans to develop and administer their drug benefits."
In other words, because it is a common industry practice for drug companies to give gifts to those who prescribe more of their drugs, it should be permitted to continue. That, unfortunately, is a logical fallacy; the mere fact that something is common does not make it ethical. If that is the best that the various interest groups can offer, the practices should be discontinued.
Fortunately, there are a couple of other arguments to consider. One is that restrictions on gifts could have a "chilling effect" on efforts to cut costs - for some reason, HMOs think that if it becomes illegal for them to receive financial gifts from drug makers, then drug makers will be afraid to give bulk discounts. That sounds like nonsense, but just to allay their fears, it would be reasonable to make a provision permitting bulk discounts.
Another argument, this time from the American Medical Association, contends that drug companies should be allowed to give doctors pens, notepads and other items of "nominal value" that have "no correlation to any service provided by the physician to the pharmaceutical company." According to the AMA, such items are "harmless."
That leads us to address just what all of the fuss is about in the first place. Who cares if drug companies are giving pens, pads, bags, or even cash to doctors, HMOs, and others who make decisions about what drugs you use? The problem is, patients are under the perception that doctors recommend particular drugs because they will have the best balance of good effects vs. bad effects for their particular situation. In other words, this drug should do the best job at alleviating symptoms and curing an illness without producing too many negative side effects.
However, gifts from powerful drug companies begin to skew that situation. What if a doctor is being influenced to prescribe heart medication A over heart medication B not because it is more effective, but because the manufacturer provides greater financial gifts to her and and to the insurance plan? To return to the statement from the AMA, are even "nominal" gifts really so "harmless"?
The fact of the matter is, even though the gifts are "nominal" to the physician, the costs of producing so many are not insignificant - and the drug manufacturers would not bother if they didn't serve as an effective form of advertising. As the Massachusetts Medical Society has asked:
Is the physician who writes a prescription with a company's logo on the pen more likely to write a prescription for that advertiser? Are patients more likely to request a certain drug because they see the notepad on the doctor's desk?
Sadly, physicians themselves don't seem to be entirely cognizant of the problem. In the January 19, 2000 edition of the Journal of the American Medical Association, Dr. Ashley Wazana revealed that while 85% of medical students belived it improper for politicians to accept gifts from lobbyists, only 46% thought it improper for doctors to receive gifts from drug companies. Evidently, while they distrust the ability of politicians to remain uninfluenced, they do trust themselves to be free of such burdens.
The next time your doctor prescribes a medication, considering asking why that drug rather than some other drug. Consider asking the doctor if she receives any financial gifts or benefits from the manufacturer of that drug. If you see "nominal" items advertising the drug, consider asking if they influence the doctor's decision. Such questions are uncomfortable, but ethical questions often are - and they may be more uncomfortable for your physician than for you.
The Truth About the Drug Companies
Every day Americans are subjected to a barrage of advertising by the pharmaceutical industry, especially on TV. Mixed in with the pitches for a particular drug—usually featuring beautiful people enjoying themselves in the great outdoors—is a more general message. Boiled down to its essentials, it is this: “Yes, prescription drugs are expensive, but that shows how valuable they are. Besides, our research and development costs are enormous, and we need to cover them somehow. As ‘research-based’ companies, we turn out a steady stream of innovative medicines that lengthen life, enhance its quality, and avert more expensive medical care. You are the beneficiaries of this ongoing achievement of the American free enterprise system, so be grateful, quit whining, and pay up.”
Is any of this true? Well, the first part certainly is. Prescription drug costs are indeed high—and rising fast. Americans now spend a staggering $200 billion a year on prescription drugs, and that figure is growing at a rate of about 12 percent a year (down from a high of 18 percent in 1999). Drugs are the fastest-growing part of the health care bill — which itself is rising at an alarming rate. The increase in drug spending reflects, in almost equal parts, the facts that people are taking a lot more drugs than they used to, that those drugs are more likely to be expensive new ones instead of older, cheaper ones, and that the prices of the most heavily prescribed drugs are routinely jacked up, sometimes several times a year.
Paying for prescription drugs is no longer a problem just for poor people. As the economy continues to struggle, health insurance is shrinking. Employers are requiring workers to pay more of the costs themselves, and many businesses are dropping health benefits altogether. Since prescription drug costs are rising so fast, payers are particularly eager to get out from under them by shifting costs to individuals. The result is that more people have to pay a greater fraction of their drug bills out of pocket.
Many of them simply can’t do it. They trade off drugs against home heating or food. Some people try to string out their drugs by taking them less often than prescribed, or sharing them with a spouse. Others, too embarrassed to admit that they can’t afford to pay for drugs, leave their doctors’ offices with prescriptions in hand but don’t have them filled. Not only do these patients go without needed treatment but their doctors sometimes wrongly conclude that the drugs they prescribed haven’t worked and prescribe yet others—thus compounding the problem.
The people hurting most are the elderly. When Medicare was enacted in 1965, people took far fewer prescription drugs and they were cheap. For that reason, no one thought it necessary to include an outpatient prescription drug benefit in the program. In those days, senior citizens could generally afford to buy whatever drugs they needed out of pocket. Approximately half to two thirds of the elderly have supplementary insurance that partly covers prescription drugs, but that percentage is dropping as employers and insurers decide it is a losing proposition for them. At the end of 2003, Congress passed a Medicare reform bill that included a prescription drug benefit scheduled to begin in 2006, but as we shall see later, its benefits are inadequate to begin with and will quickly be overtaken by rising prices and administrative costs.
For obvious reasons, the elderly tend to need more prescription drugs than younger people—mainly for chronic conditions like arthritis, diabetes, high blood pressure, and elevated cholesterol. In 2001, nearly one in four seniors reported that they skipped doses or did not fill prescriptions because of the cost. (That fraction is almost certainly higher now.) Sadly, the frailest are the least likely to have supplementary insurance. At an average cost of $1,500 a year for each drug, someone without supplementary insurance who takes six different prescription drugs—and this is not rare—would have to spend $9,000 out of pocket. Not many among the old and frail have such deep pockets.
Furthermore, in one of the more perverse of the pharmaceutical industry’s practices, prices are much higher for precisely the people who most need the drugs and can least afford them. The industry charges Medicare recipients without supplementary insurance much more than it does favored customers, such as large HMOs or the Veterans Affairs (VA) system. Because the latter buy in bulk, they can bargain for steep discounts or rebates. People without insurance have no bargaining power; and so they pay the highest prices.
In the past two years, we have started to see, for the first time, the beginnings of public resistance to rapacious pricing and other dubious practices of the pharmaceutical industry. It is mainly because of this resistance that drug companies are now blanketing us with public relations messages. And the magic words, repeated over and over like an incantation, are research, innovation, and American. Research. Innovation. American. It makes a great story.
But while the rhetoric is stirring, it has very little to do with reality. First, research and development (R&D) is a relatively small part of the budgets of the big drug companies—dwarfed by their vast expenditures on marketing and administration, and smaller even than profits. In fact, year after year, for over two decades, this industry has been far and away the most profitable in the United States. (In 2003, for the first time, the industry lost its first-place position, coming in third, behind “mining, crude oil production,” and “commercial banks.”) 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.
Second, the pharmaceutical industry is not especially innovative. As hard as it is to believe, only a handful of truly important drugs have been brought to market in recent years, and they were mostly based on taxpayer-funded research at academic institutions, small biotechnology companies, or the National Institutes of Health (NIH). The great majority of “new” drugs are not new at all but merely variations of older drugs already on the market. These are called “me-too” drugs. The idea is to grab a share of an established, lucrative market by producing something very similar to a top-selling drug. For instance, we now have six statins (Mevacor, Lipitor, Zocor, Pravachol, Lescol, and the newest, Crestor) on the market to lower cholesterol, all variants of the first. As Dr. Sharon Levine, associate executive director of the Kaiser Permanente Medical Group, put it,
Third, the industry is hardly a model of American free enterprise. To be sure, it is free to decide which drugs to develop (me-too drugs instead of innovative ones, for instance), and it is free to price them as high as the traffic will bear, but it is utterly dependent on government-granted monopolies—in the form of patents and Food and Drug Administration (FDA)–approved exclusive marketing rights. If it is not particularly innovative in discovering new drugs, it is highly innovative—and aggressive—in dreaming up ways to extend its monopoly rights.
And there is nothing peculiarly American about this industry. It is the very essence of a global enterprise. Roughly half of the largest drug companies are based in Europe. (The exact count shifts because of mergers.) In 2002, the top ten were the American companies Pfizer, Merck, Johnson & Johnson, Bristol-Myers Squibb, and Wyeth (formerly American Home Products); the British companies GlaxoSmithKline and AstraZeneca; the Swiss companies Novartis and Roche; and the French company Aventis (which in 2004 merged with another French company, Sanafi Synthelabo, putting it in third place). All are much alike in their operations. All price their drugs much higher here than in other markets.
Since the United States is the major profit center, it is simply good public relations for drug companies to pass themselves off as American, whether they are or not. It is true, however, that some of the European companies are now locating their R&D operations in the United States. They claim the reason for this is that we don’t regulate prices, as does much of the rest of the world. But more likely it is that they want to feed on the unparalleled research output of American universities and the NIH. In other words, it’s not private enterprise that draws them here but the very opposite—our publicly sponsored research enterprise.
Over the past two decades the pharmaceutical industry has moved very far from its original high purpose of discovering and producing useful new drugs. Now primarily a marketing machine to sell drugs of dubious benefit, this industry uses its wealth and power to co-opt every institution that might stand in its way, including the US Congress, the FDA, academic medical centers, and the medical profession itself. (Most of its marketing efforts are focused on influencing doctors, since they must write the prescriptions.)
If prescription drugs were like ordinary consumer goods, all this might not matter very much. But drugs are different. People depend on them for their health and even their lives. In the words of Senator Debbie Stabenow (D-Mich.), “It’s not like buying a car or tennis shoes or peanut butter.” People need to know that there are some checks and balances on this industry, so that its quest for profits doesn’t push every other consideration aside. But there aren’t such checks and balances.
Drug Companies develop, produce, and market drugs licensed for use as medications, providing generic and brand medications.
The nine largest drug companies raked in $30.6 billion in 2001 profits. During the past decade, drug firms’ profits represented an 18.5 percent return on revenue or 5.6 times the median return (3.3 percent) of Fortune 500 companies. As the economy soured further in 2002, many drug companies continued to grow and thrive.
So, do you think that your friendly doctor and the drug companies are trying to help you improve your health by convincing you to take more and more drugs?
Conflict of Interest?
Visit any doctor's office and you'll see drug reps giving doctors samples to promote their products. Drug companies are known to lobby doctors and health care providers but until now there was no way to find out how much money doctors were being paid by pharmaceutical companies.
Diabetes treatment costs more than any other disease (over $132 billion annually), but diabetes treatment also generates the most revenue for the healthcare industry (over $210 billion annually!). Is this a conflict of interest for an industry that is more focused on a “sick” care strategy that creates drug- dependent patients – instead of a “health” care strategy that cures the actual ailment or disease?
Your doctor makes money when you pay for the appointment. Your doctor makes more money when the drug company pays him to "push" their drugs. And, you pay for the drugs and the doctor appointment. So ... how's that workin' for ya?
Are you getting better? Do you find yourself spending more money for the drugs? Have you discovered that you're taking more drugs today than you were taking just 3-5 years ago? And, you're spending more money for the drugs, the doctors, the hospitals, the health insurance. But, in the meantime, your health continues to go downhill!
WAKE UP, PEOPLE!!
Pharmaceutical companies have readily admitted that they routinely pay insurance companies to increase the use of their products and to be added to the recommended list of drugs. They admit that they give rewards and kickbacks to both pharmacists and doctors for switching patients from one brand of medication to a rival. And, they admit that they provide all sorts of gifts and gratuities to doctors, ranging from financial aid to educational programs to bags and writing pads, to encourage doctors to prescribe their brand of drugs.
If you are concerned with your doctor “pushing” drugs onto you, consider asking if he/she receives any financial gifts or benefits from the drug manufacturer. Such questions are uncomfortable, but ethical questions often are -- and they may be more uncomfortable for your doctor than for you.
Otherwise, go to www.naturopathic.org to contact a naturopathic doctor who subscribes to the motto “Doctor do no harm.”
Doctor Kickbacks: Getting Paid by the Drug Companies
Most people have gotten a doctor's prescription at some point in their lives for a medicine they have needed. Some people need prescription medication on a regular basis due to their medical problems. The question is, to what degree can you trust that your doctor writes a prescription based only on your best interests as a patient?
That seems like a strange question - after all, what else would a doctor have in mind? Shouldn't the doctor's choice of medication depend solely upon what your needs are as a patient? That does sound like the way things should be, but recent revelations suggest that something very different is going on: pharmaceuticals companies may be exercising undue and unethical influence on doctors and what doctors prescribe.
Drug makers have readily admitted that they routinely pay insurance companies to increase the use of their products and to be added to the recommended list of drugs. They admit that they give rewards to both pharmacists and doctors for switching patients from one brand of medication to a rival. Finally, they admit that they provide all sorts of gifts and gratuities to doctors, ranging from financial aid to educational programs to bags and writing pads, in the hopes that they will encourage doctors to remember and perhaps prescribe their brand of drugs.
Not everyone approves of such actions. In October of 2002, the Department of Health and Human Services stated that many gifts and gratuities are suspicious because they looked like illegal kickbacks. Various consumer groups such as the AARP have expressed their support for further restrictions on such gifts, and the government is considering implementing such restrictions.
Unfortunately, further restrictions may be unlikely because the consumer groups are vastly outnumbered by doctors, insurers, and of course drug companies who have flooded the government with letters criticizing proposals to restrict gifts. Perhaps the first impression about giving gifts is mistaken and there are good reasons for them - so, what arguments do the companies use in their defense?
It seems that the most common defense is that the practice of giving gifts is, well, common. According to Solvay Pharmaceuticals, "a policy statement that declares well-established commercial practices potentially criminal creates a chilling effect on commerce and ultimately harms all consumers." A a coalition of 19 pharmaceutical companies, including Pfizer and Eli Lilly has said proposals to restrict gifts were "not grounded in an understanding of industry practices."
The recipients of the gifts agree. According to the American Association of Health Plans, representing most of the nation's H.M.O.'s, the proposed changes would "cast doubt on the propriety of many well-established practices undertaken by health plans to develop and administer their drug benefits."
In other words, because it is a common industry practice for drug companies to give gifts to those who prescribe more of their drugs, it should be permitted to continue. That, unfortunately, is a logical fallacy; the mere fact that something is common does not make it ethical. If that is the best that the various interest groups can offer, the practices should be discontinued.
Fortunately, there are a couple of other arguments to consider. One is that restrictions on gifts could have a "chilling effect" on efforts to cut costs - for some reason, HMOs think that if it becomes illegal for them to receive financial gifts from drug makers, then drug makers will be afraid to give bulk discounts. That sounds like nonsense, but just to allay their fears, it would be reasonable to make a provision permitting bulk discounts.
Another argument, this time from the American Medical Association, contends that drug companies should be allowed to give doctors pens, notepads and other items of "nominal value" that have "no correlation to any service provided by the physician to the pharmaceutical company." According to the AMA, such items are "harmless."
That leads us to address just what all of the fuss is about in the first place. Who cares if drug companies are giving pens, pads, bags, or even cash to doctors, HMOs, and others who make decisions about what drugs you use? The problem is, patients are under the perception that doctors recommend particular drugs because they will have the best balance of good effects vs. bad effects for their particular situation. In other words, this drug should do the best job at alleviating symptoms and curing an illness without producing too many negative side effects.
However, gifts from powerful drug companies begin to skew that situation. What if a doctor is being influenced to prescribe heart medication A over heart medication B not because it is more effective, but because the manufacturer provides greater financial gifts to her and and to the insurance plan? To return to the statement from the AMA, are even "nominal" gifts really so "harmless"?
The fact of the matter is, even though the gifts are "nominal" to the physician, the costs of producing so many are not insignificant - and the drug manufacturers would not bother if they didn't serve as an effective form of advertising. As the Massachusetts Medical Society has asked:
Is the physician who writes a prescription with a company's logo on the pen more likely to write a prescription for that advertiser? Are patients more likely to request a certain drug because they see the notepad on the doctor's desk?
Sadly, physicians themselves don't seem to be entirely cognizant of the problem. In the January 19, 2000 edition of the Journal of the American Medical Association, Dr. Ashley Wazana revealed that while 85% of medical students belived it improper for politicians to accept gifts from lobbyists, only 46% thought it improper for doctors to receive gifts from drug companies. Evidently, while they distrust the ability of politicians to remain uninfluenced, they do trust themselves to be free of such burdens.
The next time your doctor prescribes a medication, considering asking why that drug rather than some other drug. Consider asking the doctor if she receives any financial gifts or benefits from the manufacturer of that drug. If you see "nominal" items advertising the drug, consider asking if they influence the doctor's decision. Such questions are uncomfortable, but ethical questions often are - and they may be more uncomfortable for your physician than for you.
The Truth About the Drug Companies
Every day Americans are subjected to a barrage of advertising by the pharmaceutical industry, especially on TV. Mixed in with the pitches for a particular drug—usually featuring beautiful people enjoying themselves in the great outdoors—is a more general message. Boiled down to its essentials, it is this: “Yes, prescription drugs are expensive, but that shows how valuable they are. Besides, our research and development costs are enormous, and we need to cover them somehow. As ‘research-based’ companies, we turn out a steady stream of innovative medicines that lengthen life, enhance its quality, and avert more expensive medical care. You are the beneficiaries of this ongoing achievement of the American free enterprise system, so be grateful, quit whining, and pay up.”
Is any of this true? Well, the first part certainly is. Prescription drug costs are indeed high—and rising fast. Americans now spend a staggering $200 billion a year on prescription drugs, and that figure is growing at a rate of about 12 percent a year (down from a high of 18 percent in 1999). Drugs are the fastest-growing part of the health care bill — which itself is rising at an alarming rate. The increase in drug spending reflects, in almost equal parts, the facts that people are taking a lot more drugs than they used to, that those drugs are more likely to be expensive new ones instead of older, cheaper ones, and that the prices of the most heavily prescribed drugs are routinely jacked up, sometimes several times a year.
Paying for prescription drugs is no longer a problem just for poor people. As the economy continues to struggle, health insurance is shrinking. Employers are requiring workers to pay more of the costs themselves, and many businesses are dropping health benefits altogether. Since prescription drug costs are rising so fast, payers are particularly eager to get out from under them by shifting costs to individuals. The result is that more people have to pay a greater fraction of their drug bills out of pocket.
Many of them simply can’t do it. They trade off drugs against home heating or food. Some people try to string out their drugs by taking them less often than prescribed, or sharing them with a spouse. Others, too embarrassed to admit that they can’t afford to pay for drugs, leave their doctors’ offices with prescriptions in hand but don’t have them filled. Not only do these patients go without needed treatment but their doctors sometimes wrongly conclude that the drugs they prescribed haven’t worked and prescribe yet others—thus compounding the problem.
The people hurting most are the elderly. When Medicare was enacted in 1965, people took far fewer prescription drugs and they were cheap. For that reason, no one thought it necessary to include an outpatient prescription drug benefit in the program. In those days, senior citizens could generally afford to buy whatever drugs they needed out of pocket. Approximately half to two thirds of the elderly have supplementary insurance that partly covers prescription drugs, but that percentage is dropping as employers and insurers decide it is a losing proposition for them. At the end of 2003, Congress passed a Medicare reform bill that included a prescription drug benefit scheduled to begin in 2006, but as we shall see later, its benefits are inadequate to begin with and will quickly be overtaken by rising prices and administrative costs.
For obvious reasons, the elderly tend to need more prescription drugs than younger people—mainly for chronic conditions like arthritis, diabetes, high blood pressure, and elevated cholesterol. In 2001, nearly one in four seniors reported that they skipped doses or did not fill prescriptions because of the cost. (That fraction is almost certainly higher now.) Sadly, the frailest are the least likely to have supplementary insurance. At an average cost of $1,500 a year for each drug, someone without supplementary insurance who takes six different prescription drugs—and this is not rare—would have to spend $9,000 out of pocket. Not many among the old and frail have such deep pockets.
Furthermore, in one of the more perverse of the pharmaceutical industry’s practices, prices are much higher for precisely the people who most need the drugs and can least afford them. The industry charges Medicare recipients without supplementary insurance much more than it does favored customers, such as large HMOs or the Veterans Affairs (VA) system. Because the latter buy in bulk, they can bargain for steep discounts or rebates. People without insurance have no bargaining power; and so they pay the highest prices.
In the past two years, we have started to see, for the first time, the beginnings of public resistance to rapacious pricing and other dubious practices of the pharmaceutical industry. It is mainly because of this resistance that drug companies are now blanketing us with public relations messages. And the magic words, repeated over and over like an incantation, are research, innovation, and American. Research. Innovation. American. It makes a great story.
But while the rhetoric is stirring, it has very little to do with reality. First, research and development (R&D) is a relatively small part of the budgets of the big drug companies—dwarfed by their vast expenditures on marketing and administration, and smaller even than profits. In fact, year after year, for over two decades, this industry has been far and away the most profitable in the United States. (In 2003, for the first time, the industry lost its first-place position, coming in third, behind “mining, crude oil production,” and “commercial banks.”) 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.
Second, the pharmaceutical industry is not especially innovative. As hard as it is to believe, only a handful of truly important drugs have been brought to market in recent years, and they were mostly based on taxpayer-funded research at academic institutions, small biotechnology companies, or the National Institutes of Health (NIH). The great majority of “new” drugs are not new at all but merely variations of older drugs already on the market. These are called “me-too” drugs. The idea is to grab a share of an established, lucrative market by producing something very similar to a top-selling drug. For instance, we now have six statins (Mevacor, Lipitor, Zocor, Pravachol, Lescol, and the newest, Crestor) on the market to lower cholesterol, all variants of the first. As Dr. Sharon Levine, associate executive director of the Kaiser Permanente Medical Group, put it,
Third, the industry is hardly a model of American free enterprise. To be sure, it is free to decide which drugs to develop (me-too drugs instead of innovative ones, for instance), and it is free to price them as high as the traffic will bear, but it is utterly dependent on government-granted monopolies—in the form of patents and Food and Drug Administration (FDA)–approved exclusive marketing rights. If it is not particularly innovative in discovering new drugs, it is highly innovative—and aggressive—in dreaming up ways to extend its monopoly rights.
And there is nothing peculiarly American about this industry. It is the very essence of a global enterprise. Roughly half of the largest drug companies are based in Europe. (The exact count shifts because of mergers.) In 2002, the top ten were the American companies Pfizer, Merck, Johnson & Johnson, Bristol-Myers Squibb, and Wyeth (formerly American Home Products); the British companies GlaxoSmithKline and AstraZeneca; the Swiss companies Novartis and Roche; and the French company Aventis (which in 2004 merged with another French company, Sanafi Synthelabo, putting it in third place). All are much alike in their operations. All price their drugs much higher here than in other markets.
Since the United States is the major profit center, it is simply good public relations for drug companies to pass themselves off as American, whether they are or not. It is true, however, that some of the European companies are now locating their R&D operations in the United States. They claim the reason for this is that we don’t regulate prices, as does much of the rest of the world. But more likely it is that they want to feed on the unparalleled research output of American universities and the NIH. In other words, it’s not private enterprise that draws them here but the very opposite—our publicly sponsored research enterprise.
Over the past two decades the pharmaceutical industry has moved very far from its original high purpose of discovering and producing useful new drugs. Now primarily a marketing machine to sell drugs of dubious benefit, this industry uses its wealth and power to co-opt every institution that might stand in its way, including the US Congress, the FDA, academic medical centers, and the medical profession itself. (Most of its marketing efforts are focused on influencing doctors, since they must write the prescriptions.)
If prescription drugs were like ordinary consumer goods, all this might not matter very much. But drugs are different. People depend on them for their health and even their lives. In the words of Senator Debbie Stabenow (D-Mich.), “It’s not like buying a car or tennis shoes or peanut butter.” People need to know that there are some checks and balances on this industry, so that its quest for profits doesn’t push every other consideration aside. But there aren’t such checks and balances.
The claim that drugs are a $200 billion industry is an understatement. According to government sources, that is roughly how much Americans spent on prescription drugs in 2002. That figure refers to direct consumer purchases at drugstores and mail-order pharmacies (whether paid for out of pocket or not), and it includes the nearly 25 percent markup for wholesalers, pharmacists, and other middlemen and retailers. But it does not include the large amounts spent for drugs administered in hospitals, nursing homes, or doctors’ offices (as is the case for many cancer drugs). In most analyses, they are allocated to costs for those facilities.
Drug company revenues (or sales) are a little different, at least as they are reported in summaries of corporate annual reports. They usually refer to a company’s worldwide sales, including those to health facilities. But they do not include the revenues of middlemen and retailers.
Perhaps the most quoted source of statistics on the pharmaceutical industry, IMS Health, estimated total worldwide sales for prescription drugs to be about $400 billion in 2002. About half were in the United States. So the $200 billion colossus is really $400 billion.
The election of Ronald Reagan in 1980 was perhaps the fundamental element in the rapid rise of big pharma—the collective name for the largest drug companies. With the Reagan administration came a strong pro-business shift not only in government policies but in society at large. And with the shift, the public attitude toward great wealth changed. Before then, there was something faintly disreputable about really big fortunes. You could choose to do well or you could choose to do good, but most people who had any choice in the matter thought it difficult to do both. That belief was particularly strong among scientists and other intellectuals. They could choose to live a comfortable but not luxurious life in academia, hoping to do exciting cutting-edge research, or they could “sell out” to industry and do less important but more remunerative work. Starting in the Reagan years and continuing through the 1990s, Americans changed their tune. It became not only reputable to be wealthy, but something close to virtuous. There were “winners” and there were “losers,” and the winners were rich and deserved to be. The gap between the rich and poor, which had been narrowing since World War II, suddenly began to widen again, until today it is a chasm.
Recently the public has shown signs of being fed up.
Are you fed up yet? Or, are you going to continue to be a victim of the diabetes and the drugs?
The fact that Americans pay much more for prescription drugs than Europeans and Canadians is now widely known. An estimated one to two million Americans buy their medicines from Canadian drugstores over the Internet, despite the fact that in 1987, in response to heavy industry lobbying, a compliant Congress had made it illegal for anyone other than manufacturers to import prescription drugs from other countries.15
In addition, there is a brisk traffic in bus trips for people in border states, particularly the elderly, to travel to Canada or Mexico to buy prescription drugs. Their resentment is palpable, and they constitute a powerful voter block—a fact not lost on Congress or state legislatures.
So, what do you do next?
Educate yourself about diabetes and drugs, and stop being a victim, and become a victor of wellness. Take back the power and take back your life.
Drug company revenues (or sales) are a little different, at least as they are reported in summaries of corporate annual reports. They usually refer to a company’s worldwide sales, including those to health facilities. But they do not include the revenues of middlemen and retailers.
Perhaps the most quoted source of statistics on the pharmaceutical industry, IMS Health, estimated total worldwide sales for prescription drugs to be about $400 billion in 2002. About half were in the United States. So the $200 billion colossus is really $400 billion.
The election of Ronald Reagan in 1980 was perhaps the fundamental element in the rapid rise of big pharma—the collective name for the largest drug companies. With the Reagan administration came a strong pro-business shift not only in government policies but in society at large. And with the shift, the public attitude toward great wealth changed. Before then, there was something faintly disreputable about really big fortunes. You could choose to do well or you could choose to do good, but most people who had any choice in the matter thought it difficult to do both. That belief was particularly strong among scientists and other intellectuals. They could choose to live a comfortable but not luxurious life in academia, hoping to do exciting cutting-edge research, or they could “sell out” to industry and do less important but more remunerative work. Starting in the Reagan years and continuing through the 1990s, Americans changed their tune. It became not only reputable to be wealthy, but something close to virtuous. There were “winners” and there were “losers,” and the winners were rich and deserved to be. The gap between the rich and poor, which had been narrowing since World War II, suddenly began to widen again, until today it is a chasm.
Recently the public has shown signs of being fed up.
Are you fed up yet? Or, are you going to continue to be a victim of the diabetes and the drugs?
The fact that Americans pay much more for prescription drugs than Europeans and Canadians is now widely known. An estimated one to two million Americans buy their medicines from Canadian drugstores over the Internet, despite the fact that in 1987, in response to heavy industry lobbying, a compliant Congress had made it illegal for anyone other than manufacturers to import prescription drugs from other countries.15
In addition, there is a brisk traffic in bus trips for people in border states, particularly the elderly, to travel to Canada or Mexico to buy prescription drugs. Their resentment is palpable, and they constitute a powerful voter block—a fact not lost on Congress or state legislatures.
So, what do you do next?
Educate yourself about diabetes and drugs, and stop being a victim, and become a victor of wellness. Take back the power and take back your life.
