NCPA - National Center for Policy Analysis

Biopharma- ceuticals Offset Their Expense By Reducing Health Care Costs

March 26, 2001

Drugs that make use of human molecules (genes, proteins and antibodies) are called biopharmaceuticals. They offer a bright future for scientific medicine; but their success depends on sound government policy -- especially regarding patent protection and drug pricing.

The clamor over drug prices is mostly due to the lack of insurance coverage for them. Although new, high-tech medicines can be expensive compared to older drugs, they can also reduce total medical costs by cutting down on surgery and hospital and nursing home stays, and improving people's ability to work. For example:

  • One clot-busting drug for stroke saved an average of $4,400 per patient by reducing the need for rehabilitation and home care.
  • A study in the Journal of Occupational and Environmental Medicine showed that employers saved $435 per employee per month with a new medicine for migraine that reduced absenteeism.
  • A recent study prepared for the Biotechnology Industry Organization by Parexel International Medical Marketing Services, Inc., shows that each of 57 biotechnology drugs reduces the total health care cost of treating the elderly.

Companies that spend hundreds of millions of dollars to develop these medicines need the assurance of a patent that the drug will not quickly be copied. Only one medicine in three, historically, has recouped its development costs. The need for large clinical trials ensure that drug development is expensive, and likely will continue to be so.

The high likelihood of further radical improvements in medicines is often overlooked -- provided price or profit controls don't squeeze the life out of the biopharmaceutical industry, as they have with nascent biopharmaceutical industries in Europe and Japan. What happened there could happen here if we let it.

Source: William A. Haseltine, "Genomics," Brookings Review, Winter 2001, Brookings Institution, 1775 Massachusetts Avenue, N.W., Washington, D.C. 20036, (202) 797-6000.


Browse more articles on Health Issues