On the floor of the House, Congressman Gutknecht (R-MN) compared what
a cash-paying consumer paid for 10 widely prescribed brand name drugs
at a U.S. pharmacy with the cost of the same purchases made at a pharmacy
in Munich, Germany: For Cipro (10 250 mg), $55.05 v. $35.12; for Coumadin
(100 5 mg), $89.95 v. $21.00; for Glucophage (30 850 mg), $29.95 v.
$5.00; for Pravachol (50 20 mg), $149.95 v. $62.96; for Synthroid (50
50 mg), $21.95 v $4.40; for Tamoxifen, $360.00 v. $60.00; for Zestril
(100 2.5 mg), $59.95 v. $25.04; for Zocor (30 10 mg), $89.95 v. $41.20;
for Zoloft (50 50 mg), $132.95 v. 82.52. The total bill in the U.S.
was $1,039.65, in Germany $373.30.
In the chain of distribution, the cost of a drug increases at every
level from the manufacturers to the wholesalers, to the insurers, and
to the retail pharmacies. The 75 million Americans without health insurance
tend to pay the highest drug prices, or they go without their prescribed
medicine.
Health maintenance organizations (HMOs), hospitals, clinics and physicians
tend to get rebates, particularly if they can influence what and how
much of a brand-name medicine is prescribed. They have what the pharmaceutical
salesmen call "price sensitivity."
In Germany's decentralized national health care system, the government
sets prices for new medicines in line with the prices of existing drugs
that provide the same therapeutic benefits. Prices for drugs patented
after 1995 are not restricted, but each of Germany's 700 insurance funds
may negotiate prices with the pharmaceutical manufacturers. Hence on
the average, brand name drug prices in Germany are 35 percent lower
than in the United States.
In Canada, the Patent Medicine Prices Review Board sets and enforces
the maximum prices for brand name drugs. These prices--all of which
are from 31 percent (in Britain) to 45 percent (in Italy) lower than
in the U.S.--may not exceed the median prices in other industrialized
countries. Canada's Board allows price hikes only in line with the consumer
price index.
These large international price differentials raise a crucial question:
Can the pharmaceutical manufacturers here and abroad produce sufficient
profit when they sell their brand name drugs in Canada, Western Europe,
and Japan at a third less than in the U.S.? Or do exorbitant profits
in the U.S. allow them to live with smaller profits elsewhere?
Spokespersons for America's pharmaceutical industry routinely emphasize
that in a free market a product's price is not determined by its intrinsic
value or by the cost of research and development, but by what the consumers
are willing to pay. Shareholders, moreover, want a sizable return on
their investment, not only because of the risks involved in the production
of innovative compounds, but also to make up for decreasing income when
patents expire.
The profits of America's brand name drug manufacturers lie between 20
and 25 percent after taxes while the profits of pharmacies are no more
than 2 to 3 percent. A study by the Kaiser Family Foundation showed
that 14 percent of the pharmaceutical industry's revenue was spent on
research and development, while 24 percent was set aside for profits.
In the 1990s, the drug industry's profits as a percentage of revenues
were more than four times the median rate of profit for all Fortune
500 companies.
Pharmaceutical Research and Manufacturers of America (PhRMA), a lobby
for 28 companies, claims that in the 1980s three out of ten new drugs
did not rise to the level of profitability. Although favoring free market
pricing, PhRMA wants Congress to forbid Americans drug purchases in
other countries because of the risk of getting counterfeit, sub-potent,
or adulterated medicines. PhRMA fails to admit that Americans may buy
any amount of inferior quality drugs domestically right on the web.
A personal note: As investor in pharmaceuticals, I would certainly be
willing to forego a few dollars in profits, if I could tell my friends
abroad that in America even the poor can get the medicines they need.