NCPA - National Center for Policy Analysis

Politics And Pharmaceuticals

September 6, 2000

Al Gore is denouncing the drug companies as too "powerful and greedy," while also promising "we will find new medicines and new cures not just for cancer but for everything from diabetes to HIV/AIDS." Columnist Robert J. Samuelson says that in this case the "we" Gore refers to is mostly the drug companies.

How to develop costly drugs and keep them affordable is a dilemma:

  • In 1999, drug companies spent $24 billion on research and development -- about 60 percent more than the budget for the National Institutes of Health, which doesn't spend all its money on drug research.
  • Hundreds of new drugs are in development -- most will fail, and those that make it to market take about 15 years to develop, at a cost of $200 million to $500 million.
  • More than half the companies' profits come from the best-selling 10 percent of drugs, conclude studies by economist Henry Grabowski of Duke University.

But "price gouging" isn't impoverishing seniors, says Samuelson:

  • Among Medicare recipients, two-thirds had some drug coverage from insurance in 1996.
  • Insurance coverage has become better over the years -- in 1980, patients paid 66 percent of drug costs out-of-pocket, but by 1998 they paid only 27 percent.
  • In 1996, Medicare recipients with drug insurance paid 1 percent of income to cover drug costs out-of-pocket, while those without coverage paid 2 percent.

There are hardships for some seniors: a 1997 survey found about 5 percent of respondents couldn't afford some needed prescription. The government could adopt price controls or shorten patent protection; but if research companies' profits drop, development will suffer -- along with seniors.

Source: Robert J. Samuelson, "Beware of a Regulatory Overdose," Washington Post, September 5, 2000.


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