Pharmaceutical Manufacturers
and the Cost of Medications

According to pharmaceutical industry experts, the cost of prescription drugs has increased by 85 percent from 1996 to 2000 and is expected to continue to rise significantly over the next five years. At the same time, pharmaceutical manufacturer profits continue to lead the U.S., posting higher returns on revenue and assets than any other industry.

The competitive tactics of pharmaceutical companies have come under increased scrutiny as America’s employers and government agencies struggle with the increasing costs of providing prescription drug coverage. In particular, pharmaceutical manufacturers have come under fire for the following reasons:

• Direct-to-consumer (DTC) advertising. Manufacturers of brand prescription drugs continue to spend exorbitant amounts of money on direct-to-consumer advertising, with television ads for prescription drugs as common as automobile and beverage ads. DTC advertising is controversial with many experts concerned that the ads typically offer limited information and may contribute to inappropriate prescribing and increased prescription costs.
  
  For example, the February issue of Consumer Reports warns that drug ads:
1. Commonly minimize drug risks.
2. Exaggerate how well drugs work.
3. Make false claims that one drug is better than another.
4. Suggest unapproved uses for existing drugs, and
5. Promote still-experimental drugs.

• Advertising expenditures vs. research and development expenditures. While drug manufacturers emphasize the importance of their research and development of new life-saving drugs, the eleven Fortune 500 drug companies devote an average of approximately three times more on advertising, marketing, and administrative costs than on research and development of drugs.

• Blocking generic drug introductions through legal maneuvers. For example, the Wall Street Journal reported that the maker of the popular drug Claritin filed a lawsuit against ten generic manufacturers in order to block the introduction of a generic form of Claritin. In many cases, lawsuits such as this lack substance but serve to unnecessarily delay the launch of generic products to the detriment of consumers.

• Anti-competitive agreements with generic manufacturers. There are many documented cases of agreements where brand manufacturers make large payments to generic manufacturers in return for delaying the generic drug’s introduction.

• Introducing new dosage forms of drugs prior to generic introductions. One way a brand prescription drug manufacturer can avoid generic competition is to make a small change in the dosage form of their drug and then employ aggressive marketing strategies to convert patients to the newer product prior to the generic drug release. This practice can significantly reduce the cost savings potential–for consumers and employers–of new generic drugs. Examples include once-a-day Glucophase and once-weekly Prozac. These tactics are not going unnoticed. The federal government, state governments, health plans, health provider and consumer groups have begun to address the competitive practices of pharmaceutical manufacturers.

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