• We consume more drugs than ever. Drug manufacturers are producing totally new treatments for a variety of illness.
• There's a continual new and expensive introduction of drugs. The industry introduces improved versions of existing drugs which are often more expensive. Americans only want the best.
• Prices are going up. Because of a competitive environment in which drug companies get multiple patents and patent extensions that protect them from rivals, drug makers are able to charge more for medicines.

Each year drug makers produce new medicines that make patients more comfortable and save lives. Americans end up switching from older, less costly drugs to newer, more expensive versions of the same basic treatment. Often the replacement drugs offer distinct advantages over the old, thus people are willing to spend more.

Furthermore, research and development plays a major role in the exorbitant cost of prescription drugs. Newsweek cites, "U.S. drug companies will spend more than $22 billion on research and development this year, a 10 percent increase over 1999." It costs approximately $500 million and takes from 12 to 14 years to develop a new drug, according to manufacturers.

American consumers pay more because people overseas pay less. Drug makers are forced to give discounts in foreign countries, thus affecting the cost of drugs in America to compensate for the discounts. Families USA reported that between January 1999 and January 2000, the average wholesale prices of 15 of the 50 drugs used more frequently by seniors to treat arthritis, diabetes and other common problems of the elderly rose at more than three times the rate of inflation.

According to Fortune magazine, the pharmaceutical industry is ranked as one of the most profitable industry, ranking at the top in all three categories - return on revenues, return on assets and return on shareholders' equity for 1999. Critics of the industry say "drug-company profits are excessive."

Finally, another factor in rising costs of drugs is the cost of advertisement and promotion of prescription drugs. Last year the drug makers spent nearly $14 billion on advertising and promotion. One study showed that between 1993 and 1998, the 10 most heavily advertised drugs had a 22 percent increase in drug spending.

Source/Resource: "Why Drugs Cost So Much," David Noonan, Newsweek, September 25, 2000.