Prescription Drug Makers Pressured to Rethink Prices : Pharmaceuticals: The industry attracts criticism as the price of drugs has risen at three times the rate of inflation.
For the Worthing family of Pasadena, prescription drugs compete with food and rent for the family’s limited resources.
Joanne Worthing, 48, has seen the price of Dilantin, an anti-seizure drug she must take daily, triple over the last 10 years. Her monthly supply of Dilantin and Lotensin, a high blood pressure drug, takes $89 a month from her modest salary.
Worthing’s sister-in-law recently saw the price of her diabetes medication suddenly increase to $57, from $37, for a month’s supply. None of the Worthing household--Joanne, her brother, his wife, and their three children--has health insurance or prescription drug coverage.
“If someone has to be on something to keep alive, why do we have to pay such prices?” Joanne Worthing asked.
Although they make up only about 5% of total health care costs, prescription drugs have been attracting increasing attention because they are often not covered by insurance, and consumers feel the sting of price rises directly.
Drug prices rose at about three times the rate of inflation in the 1980s, giving consumer advocates ammunition for their attacks on drug companies’ “excessive” average profit margins of 15% of sales--about five times the average profit levels for all Fortune 500 corporations.
Drug companies argue that the high cost of research contributes to drug price increases. “You can’t fund future drugs on future profits,” said Sandy Horner, a spokesperson for Parke-Davis, which makes Dilantin. Despite the price increases, at 55 cents a day Dilantin remains relatively inexpensive compared to many drugs, including competing anti-seizure medications, she said.
A spate of recent private and government studies have highlighted just how expensive drugs are. Families USA, a Washington-based consumer group, revealed in a study released recently that prices for the 20 top-selling drugs increased an average of 82% from 1985 to 1991.
The prices of five of the drugs on the list more than doubled in the period. Premarin, an estrogen that is produced by American Home Products subsidiary Wyeth Ayerst, led the pack with a price rise of 148%.
Veterans Administration hospitals saw prices they paid for 19 of 29 commonly prescribed drugs more than double between 1986 and 1991, according to an August Government Accounting Office study. Dilantin rose 310%.
About 10% of Americans over age 45 cut back on necessities, such as food and fuel, to pay for prescription medicine, and 50% over age 65 have trouble paying for their drugs, according to a recent survey by the American Assn. of Retired Persons.
Mounting pressure to slow price growth from Congress, consumers, and employers has forced drug makers to give discounts to an increasing range of major buyers.
Congress has mandated that drug makers give Medicaid the same discounts it offers large buyers such as hospitals and HMOs. And Sen. David Pryor (D-Ark.), chairman of the Senate special committee on aging, is pushing a bill that could deny billions of dollars in tax credits to drug companies whose price increases exceed the consumer price index.
Anticipating such legislation, a number of drug companies have pledged to keep their price rises in line with the CPI, following the lead of Merck, which promised to do so in 1990.
Recently, overall drug price increases have begun to slow, though they still exceed the CPI. According to the Bureau of Labor Statistics, drug price increases in the year ended in June were 6.3%, compared to 7.8% in 1991 and 8.1% in 1990.
Ronald Nordmann, an analyst with PaineWebber, figures that the downward price pressure will slow, but not stifle, pharmaceutical profit growth. He said drug company profits will grow 14% a year for the next five years, compared to 18% over the last five years.
He noted that drug companies, which have a large proportion of their sales overseas, are accustomed to dealing with limited pricing flexibility. The United States is the only major industrial country that does not set, or strictly regulate, drug prices, he said.
Shifts in the market have also inhibited price rises. Like the rest of the health care industry, drug makers are finding their customer base shifting from individual patients to volume buyers such as HMOs that demand deep discounts. Merck figures that prescriptions written by private-practice doctors and paid for at full price by patients or insurance companies will be only 33% of its sales by 1995, down from 60% in 1985.
While individual consumers have cried out for years against the high cost of drugs, they had lacked resources to shop around. Now companies such as PCS Health Services and Medco Containment Services help employers shop for the best drug prices, tracking costs of comparable products with elaborate computer systems.
Today, pharmaceutical companies are beginning to try to compete in the drug market on price--a revolutionary concept in the non-generic market. Patients are probably increasingly asking doctors to consider price in writing prescriptions, Nordmann said.
In order to appeal to the new price-consciousness, Ciba-Geigy is offering a guaranteed lifetime price to patients taking its Lotensin blood pressure medication.
Marion Merrell Dow is advertising its hypertension drug Cardizem CD as a money saver in consumer magazines. And Pfizer gained significant market share for its Procardia XL cardiovascular drug by pricing it attractively, according to Nordmann.
Some drug companies have even begun selling generic versions of their own drugs.
Anticipating competition from low-priced generic knockoffs of its anti-arthritis drug Dolobid after its patent expiration earlier this year, Merck is marketing its own low-priced copy of the drug. It will sell the generic at a lower price while continuing to sell the brand-name form at a higher price.
Analysts said Merck will probably use its current Dolobid sales force to continue marketing the original version to individual doctors, who may feel more comfortable with a brand name, while other company representatives use the generic form to compete in the HMO and hospital markets.
Pharmaceutical companies argue that drugs are an efficient way to spend health care dollars because they are often far cheaper than other therapies such as surgery. They have mounted a major public relations campaign to that effect.
But “we’ve not been very successful in convincing people (drugs are) a high-tech product, so there’s a lot of public pressure on pricing,” said John Doorley, a spokesman for Merck & Co.
