Campus Life

The Medical Minute: The cost of good health

Better living through chemistry has become a reality, but it also comes with some complications

By John Messmer, M.D.
Penn State Milton S. Hershey Medical Center

Have you noticed? People live longer, their health is better and they are hospitalized less often. One reason -- modern pharmaceuticals. The good news is we are spending much less on hospitalizations than in the past. For example, drugs for mental illness annually keep about 400,000 people out of psychiatric hospitals and pneumonia is commonly treated at home in all but the most complicated cases. The bad news is we are consequently spending much more on prescription medications. According to research at Tufts University, hospital costs in the 1990s dropped from 35 to 33 percent of total health care costs while drug costs increased from 5.5 to 8.5 percent.

Nearly 80 percent of Americans take a prescription medication in any given week. A quarter of us take five or more medications regularly. If you are among those, you have likely confronted the high cost of prescription drugs and wondered how a medication for cholesterol, for example, can cost $2 to $3 per pill. It's a complicated problem. First, however, some comparisons are needed.

In 2002, according to the Bureau of Labor Statistics, Americans spent $370 per capita for prescription drugs. By comparison, we also spent $618 on alcohol and tobacco and $849 on telephone service. Unfortunately, much of the cost for drugs is spent by the elderly and others on limited incomes.

It can take up to $900 million and 12 years to develop a new drug because 75 percent of new products are failures. Useful medications are subject to strict regulations by the FDA in an effort to protect the public from potentially harmful drugs, thus increasing development costs. When a new drug is finally released, the pharmaceutical company must try to recoup its investment on the development of the drug plus enough profit to put back into research for new drugs. By the time the drug has been approved for use, a significant portion of its patent life may have passed, limiting the time for the company to see a return on its investment.

Critics of the pharmaceutical industry will point out however, that on average about as much is spent on advertising as on research and development, and in some cases promotional spending is twice that of research. They also point to shareholder profits and CEO salaries in the millions as a significant portion of drug costs.

When a patent is about to expire, some companies will take a current best seller, change it slightly and reintroduce it in order to continue to gain profit. A recent example is Prilosec, the first of a class of potent acid suppressants called proton pump inhibitors. It was changed slightly by altering the shape of the molecule and is now sold as Nexium. Another tactic is to seek FDA approval for a product under a new name for a different health problem. Prozac, used for years for depression but now available as generic, was approved with a new name, Sarafem, for premenstrual dysphoric syndrome or PMS. It is still fluoxetine, but, with a new commercial name and approved use, it can continue to generate profits for its manufacturer.

So, how can the pharmaceutical companies charge so much in the U.S. while the same drug is available for less in Canada and other countries? The simple answer is they charge what the market will bear, just like all other goods and services without price controls. The difference with drugs is that competition does not work the same way.

You cannot easily comparison shop for prescription drugs as you might choose a brand of toothpaste even though the pharmaceutical industry is advertising directly to consumers now. If you have a pharmacy benefits plan, you may not even be aware of the actual cost of the drug. For a $20 co-pay, you might be getting a drug whose full price is $20 or $1,000. The price is not set on the basis of some intrinsic value but on an estimation of what price could reasonably be obtained.

If a pharmaceutical company releases a new drug when there are many others that do the same thing and which does not have any distinct advantage, it will typically price it about the same as all the others in the class because a lower price does not increase sales. The wholesale cost of the medication is also reduced by rebates drug companies give to pharmaceutical benefits managers to restrict the use of competitors' products. In this physician's view, these actions make drug prices a moving target and put the consumer at a disadvantage in judging true value.

What about generics? Once a drug's patent expires, other manufacturers are free to produce and sell it. Typically, the price is lower, but not always. Generic manufacturers may sell to pharmacies for a lower price than the original brand, but if it is a popular drug, both the manufacturer and the pharmacy may charge what the market will bear. The markup on generics can be 10 times the cost. It may seem a bargain to get a drug for $10 that previously cost $60 a month for the brand until you realize the cost to the pharmacy is $55 for the brand name drug but $2 for the generic.

What about Canada? Why don't we just send our prescriptions to pharmacies there to save money? Most, but not all, drugs are less expensive in Canada because the Canadian government sets the prices. If everyone in the U.S. sent to Canada to have their prescriptions filled, the manufacturers would soon limit the amount they would sell to Canada at the lower price, causing shortages at the lower price. Third party agents who sell over the Internet, for example, are not always purchasing the drugs in Canada. This has raised concerns for our Food and Drug Administration since bootleg drug trade is a significant problem worldwide. The packaging is the same, but the product may not be pure or even match what it says on the label. The consumer has no way of knowing for sure what was purchased.

So what can one person do to save on the cost of their medications? Discuss cost with your doctor. Recognize that although you may pay a small co-pay, you are still paying the cost of an expensive drug through the premium paid for your insurance. Even if your employer pays most of the premium, if costs are kept down, more money is available for salary and other benefits. In many cases, a generic drug is completely adequate, but often better treatments are available in the form of newer, brand name drugs. Your doctor should be able to explain his or her reasoning for the choice.

Some pills can be split. You might be able to buy a higher dose pill for the same price as your dose, split it in half and thereby cut your cost in half. Drugs that are specially coated, some time release medications and those that have special drug reservoirs typically cannot be split. Most pharmaceutical companies have programs for providing free medication to those who cannot afford to buy them, and many companies have discount programs. Your doctor should be able to help you with this, or you can visit http://www.needymeds.com for information.

Ultimately, the best way to save money on medication is to take excellent care of yourself. Avoid smoking, maintain a normal weight and exercise regularly to cut your risk of heart disease, diabetes, high blood pressure and stroke in half and significantly reduce your risk of cancer, Alzheimer's and other diseases -- all of which have very expensive medications for their treatment.

Last Updated March 19, 2009

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