Medicare Prescription Drug Costs 101

Send this article to a friend.

Printer friendly version.

Medicare Prescription Drug Costs 101

By retired pharmacist Duane Hess

For pharmaceutical companies, Medicare recipients have been a gold mine. The Congressional Budget Office estimated that the average Medicare beneficiary will use $2,440 worth of prescription drugs in 2003. The Wall Street Journal reports that pharmaceutical companies posted net profit increases of 12%-14% each year over the last 20 years, a consistency unmatched by any other industry. We frequently hear that drug prices are so high because of the cost of research and development. Yet pharmaceutical companies spend nearly three times as much on administrative costs as they do on research and development costs according to recent shareholder reports. Consider:

Advertising—Drug companies spent nearly $2 billion on advertisements to consumers in 1999, and by 2001 their spending had jumped to $2.8 billion. A study by The National Institute for Health Care Management found that increases in the sales of only 50 of the most heavily advertised drugs in 2000 were responsible for almost half of the increase in retail spending over the same period. The two most heavily advertised were arthritis medications.
Lobbying—A total of $78 million was spent for lobbying in 2001, and over the past decade pharmaceutical companies have spent more than $1 billion, far more than any other industry, to influence the legislative process, according to The Washington Post. The money pharmaceutical companies use to lobby against legislation that would lower the price of their products comes directly from us, senior citizens who are forced to pay such high prices to use their products!
Political Contributions—Pharmaceutical companies make substantial contributions to political parties and candidates for office. During the 2000 presidential election, pharmaceutical companies spent $24.4 million—money that also comes from profits made by charging seniors high prices.

There’s considerable news about the problems of Medicare, and the changes that are needed to cut costs. This is frequently cited as a reason to be cautious about adding a prescription drug benefit. To the casual observer such as myself, however, it seems the pharmaceutical companies are throwing a good deal of money around for purposes other than developing new medications—but to ensure that prices, and thus the high profits paid for by seniors like me, continue to rise.

July 2003