NCPA - National Center for Policy Analysis

Curtailing the Rising Cost of Prescription Drugs

March 25, 2003

The cost of prescription drugs in the U.S. rose form $82 billion in 1996 to $192 billion in 2002. Some experts predict it could double again by 2001. Critics of the pharmaceutical industry often blame advertisements targeted towards consumers for the escalating cost of drugs.

  • Drug makers spend $2.3 billion on direct-to-consumer advertising compared to almost $0 in 1990.
  • In addition, drug makers dispatch 90,000 sales people to distribute $12 billion in free drug samples for doctors to hand out.

However, free market advocates point out that the problem isn't advertising products to consumers, it is that consumers (and physicians) traditionally haven't had to bear the cost of their decisions to take (or prescribe) medications. Until recently, about 80 percent of the cost of prescription drugs were covered by employer-sponsored health insurance. In response to run-away drug costs, this is now changing. More than half of large employers are adopting 3-tier copays. The way this usually works:

  • A 30-day supply of a generic drug is fully reimbursed except for a nominal (e.g., $5) copay.
  • A branded drug on the "preferred list" might be available for only a $20 copayment.
  • Many expensive drugs not thought to provide relief beyond that of cheaper alternatives might require a $30 or even a $40 copayment.

Patients wanting the latest medication advertised on television or in flashy ads in magazines may still have them -- but at a price. The purpose of these new programs is to put the patient in closer touch with the cost of decisions regarding their medications.

It has apparently already had the desired impact on some people. Generics accounted for about half of prescriptions last year, up from 19 percent in 1984.

Source: Robert Langreth, "The New Drug War," Forbes, March 31, 2003.

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