Prescription drug expenditures have consistently been one of the fastest-growing components of health care spending. Over the last decade, prescription drug costs have increased at double-digit rates each year. Employers offering drug coverage to workers or retirees have been forced to increase co-payments and deductibles. As a result, consumers, whether insured or uninsured, are facing skyrocketing out-of-pocket costs for their prescription drugs.
Though drug companies often blame high research and development (R&D) costs for double-digit annual increases in drug expenditures, the fact is that drug companies spend two to three times more on advertising and marketing the newest drugs than they do on research and development.
- A 2001 report based on an analysis of companies' SEC filings and annual reports found that, on average, 11 percent of revenues went to research and development (R&D), and 27 percent went to marketing, advertising, and administration.
- Promotional costs (e.g., providing samples to doctors, sending representatives to doctors, advertising to consumers, advertising in medical journals) have nearly doubled since 1997, rising to $19.1 billion in 2001, according to a GAO analysis of industry data.
Drug companies spend five times as much on marketing to doctors than they do advertising to patients because they know their profits depend upon whether a doctor is motivated to prescribe the newest blockbuster.
- In 2000 drug companies spent $4.8 billion on "physician detailing" the practice of sending marketers to doctors' offices to encourage doctors to prescribe a company's drugs. In the same year, drug companies spent $2.4 billion on advertising to consumers.
- Total physician promotional spending in 2000 was $13.2 billion more than five times that spent on consumer advertising. Physician promotional activities include detailing and journal advertising.
The pharmaceutical industry has consistently recorded profits that are four to five times higher that of the average Fortune 500 firm.
- Between 1994 and 2001, pharmaceutical industry profitability ranged between 14 and 19 percent, while the median for all Fortune 500 firms ranged between 3 and 5 percent.
- In Fortune Magazine's survey of the top performing companies, the pharmaceutical industry ranked first on all three measures of profitability: return on revenues (18.5 percent); return on assets (16.3 percent), and return on shareholders' equity (33.2 percent).
The pharmaceutical industry contributed heavily to President Bush and Congress in preparation for the Medicare prescription drug debate.
- President Bush's re-election campaign received $1 million from pharmaceutical companies in the run-up to the 2004 presidential campaign while Senator Kerry's campaign received $570,000. Members of Congress received a total of $16 million.
- The Center for Responsive Politics reports that the pharmaceutical industry was the 9th-ranked industry in terms of total campaign contributions during 2002, contributing $23 million.
- During the debate on the Medicare prescription drug legislation, the drug companies and their trade association (PhRMA) employed 750 lobbyists, more than six for each member of the Senate, and more than one for each member of the House.
Pharmaceutical companies have taken advantage of loopholes in the 1984 federal Hatch-Waxman patent law in order to delay introduction of low-cost generics.
- In 2000, the average retail price of a prescription for a brand-name drug was more than three times the price of a generic drug ($65.29 vs. $19.33).
- The delay of the introduction of three new generic drugs Hytrin (hypertension), Cartizem CD (a heart drug), and K-Dur 20 (potassium supplement) cost consumers over $300 million in potential savings.
- Twenty-nine state attorneys general sued Bristol-Myers-Squibb (BMS) accusing the company of illegally blocking cheaper generic alternatives to its cancer drug, Taxol. The states claimed that BMS' anti-competitive practices caused them to pay more for the drug, and are seeking the return of $200 to $250 million in estimated overcharges.
Federally funded research has played a major role in private sector research and development, contributing to medicines for conditions including cancer and AIDS.
- As of 1997, 54 out of 84 cancer-fighting drugs approved by the FDA were the products of federal funding.
- In a 1995 study conducted at the M.I.T.'s Sloan School of Management, researchers found that 11 of the 14 drugs it identified as the most significant over the preceeding 25 years were developed or discovered using government funds.