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May 12, 2008 11:07 pm US/Central
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Good Question: Why Do Drugs Cost So Much?
(WCCO)
When a name brand prescription drug treatment retails for $700 and its equivalent generic costs less than $30, it raises a lot of questions. As a consumer, the first time you generally find out how much your prescription will cost is after it has already been filled.
"The real cost of making most tablets or capsules is 5, 10 or 20 cents," said Steve Schondelmeyer, Director of the University of Minnesota's PRIME Institute for Prescription Drug Management and Economics.
"Nobody's making a wise price-value decision. The drug companies can get away with charging higher prices when nobody's watching the till," said Schondelmeyer.
He believes that doctors are too overwhelmed by the volume of drugs on the market to have a good sense on pricing. Consumers aren't demanding less expensive drugs. And by the time pharmacists get involved, it's often too late.
So why the price disparity?
"Drugs are different in a sense that some are patent-protected and have a monopoly when they sell it in the marketplace," said Schondelmeyer.
Inventing a new drug isn't cheap.
One study put the cost at more than $800 million: including the costs of all the false starts, the drugs that didn't work as treatments.
"A lot of the cost of developing a drug is in clinical trials and studying it to make sure that it is safe and effective," said Schondelmeyer.
Although having a patent gives exclusivity for 17 years, the clock starts ticking well before a drug gets FDA approval and goes on sale. Often, a drug will only be on the market under patent-protection for five to seven years.
Clinical trials are extremely expensive and according to the Tufts Center for the Study of Drug Development, the trials on average last seven years.
Then the next category of costs starts to kick in: the cost of marketing and advertising. Schondelmeyer estimated those costs can be as much as 30 percent of the cost of the drug.
"One that is very visible to the public is that purple pill we see on TV, 'Nexium,'" explained Schondelmeyer.
While the prescription drug costs $4 to $5 per day of treatment, the generic and over-the-counter version of the drug costs one-eighth of that. So why do people still ask for the "purple pill?"
"Because they saw it on TV, and it must be good," said Schondelmeyer, explaining the wrong-headed thought process. He believes consumers need to take charge of their health care by demanding lower cost drugs that are also effective.
The final factor in the cost of pharmaceuticals is the profit. Drug companies are for-profit operations, and they are in business to make money.
"I don't think it's completely fair to blame them. I think they share some of the blame," said Shondelmeyer.
"Tell the doctor, 'I want you to choose the best drug for me, but keep in mind the relative cost.' Cost is a factor. The worst thing a patient can do is let a doctor prescribe something, find out it costs $200 a month, and then not fill it," said Schondelmeyer.
And he cautioned, even if you're only paying minimal co-pay for your prescriptions, you do pay in the long-term.
"Getting that higher-priced drug actually raises your premiums the next year for your employer. And that limits the employer's ability to give you a higher salary increase," he said. "There are really no easy answers to reform this, unless we reform all health care in society."
(© MMVIII, CBS Broadcasting Inc. All Rights Reserved.)