Drug Firms Post Excessive Gains, Congress Is Told : Medicine: Study is likely to support arguments to regulate health care industry. Pharmaceutical officials dispute the findings.
The nation’s pharmaceutical companies are reaping profits far in excess of those realized by other industries, even after deducting the substantial costs of developing new drugs, according to a congressional report released Thursday.
The study by the Office of Technology Assessment calls into question industry claims that the high prices charged for many prescription drugs are necessary to offset the significant risks and prohibitive costs of pharmaceutical research and development.
Industry officials disputed the findings, saying that they are based on outdated data and fail to recognize the changing nature of the pharmaceutical market.
Nevertheless, the report appears likely to bolster arguments of those who want to increase government regulation of the health care industry. President Clinton has assailed the industry publicly for raising prices far beyond the rate of inflation, and sources said that the Administration is considering the possibility of imposing at least temporary price controls as part of the health care reform program it will unveil later this year.
The report concludes that free market forces alone are not sufficient to contain the rapid escalation of drug prices for several reasons. Many prescription drugs are paid for under health insurance plans, which means that individual consumers have little reason to shop for lower prices, the report said. Also, doctors often do not consider price when prescribing drugs and pharmacists are prohibited by law from suggesting alternative drugs.
The congressional study found that the pharmaceutical industry’s marketing and advertising costs average about $10 billion each year, $2 billion more than the industry spends annually to develop new drugs.
In addition, more than half of the $8-billion research and development spending goes to produce “me too” drugs that closely resemble products introduced by competitors, the report said.
Pharmaceutical manufacturers realized yearly profits from 1976 to 1987 that “were about 2 to 3 percentage points higher than those of firms in other industries, after differences in risk across industries was taken into account,” the report said.
Additionally, drug manufacturers collectively reaped returns $2 billion above the profit incentive necessary to raise investment money for research and development, according to the study.
“Each new drug introduced to the U.S. market between 1981 and 1983 returned . . . at least $36 million more to its investors than was needed to pay off the R&D; investment,” the report said. “This surplus return amounts to 4.3% of the price of each drug over its product life.”
The study calls attention to the evolution of a two-tier market for prescription drugs, said Rep. Henry A. Waxman (D-Los Angeles), chairman of the House Energy and Commerce subcommittee on health and environment.
Some hospitals, health maintenance organizations and government agencies have been able to negotiate discounts for bulk purchases, but most consumers buying drugs from pharmacies continue to pay ever-higher prices over which they have little control, Waxman said.
Pharmaceutical industry executives accused the congressional researchers of faulty mathematics.
