Medical Robbery

Scandalous pricing in American healthcare doesn't stop with hospital services. The practices of American pharmaceutical companies have become newsworthy. For example, there have been frequent news items about Americans making long treks to Canada just to get prescriptions filled. Then American politicians--at whose behest we can only guess--take up time in Congress to warn about the questionable safety of imported drugs. Even from Canada. Even from the same American manufacturers! That America is out of kilter in comparison with the rest of the world shows up both in the big picture and small picture data. The OECD reports that American per capita expenditures in 2011 for prescription medicines was $995. The rich country average is $497.  Either we're getting sicker or we're getting prescribed more often or we're paying double for the prescriptions. I would lean toward the latter.

Looking at the small picture, two drugs figure among the top costs in the health plan I manage: Crestor and Nexium. They both happen to be heavily advertised in television and other media. Our monthly cost for Crestor is $141. For Nexium it is $194. I had a friend in Spain check the local prices for these very same drugs: $34 for Crestor and $32 for Nexium! How can that be?

Pharmaceutical companies have to negotiate prices with governments that run national health plans. One would think that AstraZeneca (maker of Crestor) and Pfizer (maker of Nexium) would be still be making a profit with the prices they have negotiated in Spain. But since they don't have to negotiate with the American government (even though it runs a national health plan called Medicare), they can charge as they will--as we can see, several times what they charge in Spain.

Pharmaceutical companies are often heard saying that they have to reap sufficient profit off their few winners in order to pay for research and development in new effective medicines. However, if their average world price is sufficient only by jacking up American prices in relation to everywhere else, they are in effect forcing American patients to subsidize those in other countries. But whether those high prices are indeed needed in order to pay for R&D is questionable. Pfizer spends 13% of its revenues in R&D, but 28% in sales and marketing. Johnson and Johnson, another large American pharmaceutical spends 12% of revenues in R&D but 31% in sales and marketing. Frequently among pharmaceutical companies, sales and marketing expenses are a multiple of research and development costs. Those TV ads don't come cheap.

A lot of that pharmaceutical research is now occurring for the treatment of specific conditions with specialty drugs. Some are already out in the marketplace. One round of a drug called Incivek for the treatment hepatitis C cost our health plan $56,000. The rationale offered for such an egregious price is that it is still cheaper than doing a liver transplant! As more and more of these specialty drugs, health plans are going to have to wrestle with whether they are going to cover them, and if they do, who will be able to afford premiums to pay for them.