Rx Background

For the last 3 years, the Foundation for Taxpayer and Consumer Rights has conducted town halls with consumers, hospital executives, physicians, nurses and business owners to forge a consensus on policies to make health care affordable for all patients.  Prescription drug bulk purchasing and other strategies to decrease the cost of prescription drugs were common themes.

Prescription drug expenditures, along with health insurer overhead costs, have consistently been the fastest growing component of health care spending.  Over the last decade, prescription drugs costs have increased at double-digit rates each year.  As a result, consumers, whether insured or uninsured, are facing skyrocketing out-of-pocket costs for their prescription drugs. Employers offering drug coverage to workers or retirees have been forced to increase co-payments and deductibles.  For the first time in a decade, average working families cannot afford adequate health care.

Prescription drugs are available in Canada, Ireland, England, France, and Germany at 30-60% discounts because those countries negotiate rates on behalf of all patients – a move that pharmaceutical companies have thus far blocked in the U.S. 

Both President Bush and Senator Kerry were invited to ride the nonpartisan Rx Express in order to hear from seniors and others about the need for a national prescription drug bulk-purchasing program available to all patients.  

Under pressure from the pharmaceutical industry, President Bush and Congress opposed bulk purchasing in the 2003 Medicare prescription drug law which banned the Medicare program from negotiating discounts with pharmaceutical companies. While Senator Kerry has supported changes to the Medicare drug law to allow bulk discounting, neither candidate has supported a program that would allow any American to participate regardless of age.

Though drug companies often blame high research and development (R&D) costs as the driving force behind double-digit annual increases in drug expenditures, the fact is that pharmaceutical industry spends two to three times more on advertising and marketing the newest drugs than they do on research and development.

• A 2001 report based on analysis of companies' SEC filings and annual reports, 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.

The pharmaceutical industry has consistently been the most profitable industry over the past eight years, with profits four to five times higher that of the average Fortune 500 firm.

• Between 1994 and 2001, pharmaceutical industry profitability ranged between 14 percent and 19 percent, while the median for all Fortune 500 firms ranged between 3 percent and 5 percent.

• In Fortune Magazine's 2002 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 has received $871,824 from  pharmaceutical companies since 2002, while Senator Kerry’s campaign  has received a total of $349,312.

• 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 2002 election cycle.

• All drug companies and their trade association (PhRMA) employed 623 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' anticompetitive practices caused them to pay more for the drug, and are seeking the return of $200 million 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 of 11 of the 14 drugs it identified as the most significant over the preceding 25 years were developed or discovered using government funds.
  
  

  i The companies themselves aggregated the figures on marketing, advertising, and administration. "Profiting from Pain: Where Prescription Drug Dollars    Go," July 2002. Available at http://www.familiesusa.org/Ppreport.pdf

  ii Note that the GAO figure does not include administrative costs. The numbers    are based on industry-provided data. General Accounting Office, "Prescription    Drugs: FDA Oversight of Direct-to-Consumer Advertising Has Limitations,"    p. 10, October 2002.

  iii C. Williams and J. Treloar, "Trends and Indicators in the Changing    Health Care Marketplace 2002," Menlo Park, CA; The Henry J. Kaiser Family    Foundation, May 2002, p. 46, cited in Michael E. Gluck, Ph.D., "Federal    Policies Affecting the Cost and Availability of New Pharmaceuticals," The    Henry J. Kaiser Family Foundation, July 2002, p. 35. Available at www.kff.org

  iv "The 2002 Fortune 500, Top Performing Companies and Industries,"    Fortune, April 2002. Available at www.fortune.com/fortune/fortune500/topperformers

  v Center for Responsive Politics, www.opensecrets.org .

  vi Public Citizen. Available at www.citizen.org/congress/reform/drug_industry/contribution/articles.cfm?ID=7827

  vii Kaiser Chartbook Update, November 2001, p. 7. Available at www.kff.org

  viii "The Stalling Game," Consumer Reports, July 2001, p. 38.

  ix Los Angeles Times, "Bristol-Myers Sued Over Taxol Generic," June    5, 2002.

  x Michael E. Gluck, Ph.D., "Federal Policies Affecting The Cost and    Availability of New Pharmaceuticals," prepared for The Kaiser Family Foundation,    July 2002, p. 18. Available at www.kff.org

  xi Arno, Peter and Davis, M., "Paying Twice for the Same Drugs,"    Washington Post, March 27, 2002, p. A21

  xii Gerth, Jeff, and Stohlberg, Sheryl G., "Medicine Merchants: Birth    of a Blockbuster; Drug Makers Reap Profits on Tax Backed Research," New    York Times, April 23, 2000, Sec. 1, Col. 1
  
  
  

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