What the Congressional Budget Office Found
In 2004 Angell could only estimate what drugs companies were spending on marketing, as this is proprietary corporate information. However in 2009, the Congressional Budget Office (CBO) investigated and came up with the following findings:
- Drug companies spent approximately $20.5 billion on promotional activities (10.8% of total revenue) in 2008.
- In 2008, drug companies spent $38 billion on research and development (20%).
- Drug marketing costs, which grew at rapidly pace between 1988 and 2006 had slowed and had been steady for three years at 10-11%. The CBO felt this was directly related to decreased rate of new drugs coming to market.
- In 2008 drug companies spent only slightly more on promoting new drugs than they did marketing copycat drugs.
The Only Solution: Medicare for All
In my view, the only solution to the mess "corporatization" has made of the US health care system is to follow the example of other industrialized countries and establish a single, nationally funded health program. Three decades of cost studies, including research by the Congressional Budget Office and America's foremost health policy experts, show this could be accomplished quite easily by expanding Medicare (as under the new bill proposed by Senator Bernie Sanders and Congressman Jim McDermott). Under the Medicare program, doctors, hospitals and lab bill the federal government (instead of a private insurance company) for health services to seniors and the disabled. Expanding this program to all age groups would result in a streamlined, efficient system comparable to the Canadian Medicare program, in which doctors, hospitals, labs and pharmacies bill the government for the health services they deliver. US health providers, who currently bill hundreds of different private insurance plans, would simply bill Medicare for all patients, as they currently do for their 65+ patients.
This would immediately take nearly a trillion dollars out of America's $3 trillion health care bill, as it would massively reduce the cut private insurance companies take for profit, CEO salaries, marketing, administration and billing. Under the current system, this administrative waste siphons off 31% of every health care dollar. In contrast to the 3.6% it costs to administer the Medicare program (see http://www.pnhp.org/single_payer_resources/administrative_waste_consumes_31_percent_of_health_spending.php).
Reducing the Cost of Prescription Drugs
The experience in other industrialized countries is that this model also drastically reduces the cost of prescription drugs. The purchasing power enjoyed by a single agency purchasing medications for millions of citizens forces pharmaceutical companies to agree to major cost concessions. In fact it is the one true example in health care delivery where market competition leads to price reductions - especially when four or five manufacturers are producing eight virtually identical drugs for the same condition. The main reason prescription drugs are so much cheaper in Canada and Europe than the US is because of the bulk discounts their hard bargaining has won from drug companies (in the US, the Pentagon and Veterans Administration use their purchasing power to negotiate similar bulk discounts).
It Works in New Zealand
This model works exceptionally well in New Zealand, where the government has set up a semi-autonomous corporation called PHAMAC to contain prescription drug costs (which are one of the main reasons developed countries are blowing out their health budgets). See the 2004 Australian Health Review http://www.publish.csiro.au/?act=view_file&file_id=AH040171.pdf
In New Zealand, medications on PHARMAC's approved medication list are subsidized, with the patient paying a $3 co-pay. The formulary consists mainly of generic drugs, where they are available, and for brand name drugs where the manufacturer has agreed to a volume discount. If the drug company won't agree to a discount, the drug doesn't appear on the PHARMAC formulary. One example is Pfizer, which refuses to discount the price of the antidepressant Zoloft. Because patients must pay the full cost of a Zoloft prescription at the pharmacy, it's very rarely prescribed in New Zealand.
Obviously there are exceptions. If credible medical research indicates a new, non-discounted drug fills a distinct clinical need, it will be included on the formulary as a "special authority" drug. This means the prescription will only be subsidized if the doctor fills out a "special authority" application certifying that the patient meets specific diagnostic criteria and has failed to respond to one or two comparable drugs on the formulary.
The Envy of the Industrial World (and under attack - see * below)
Thanks to PHARMAC New Zealand, unlike most of the industrial world, has been relatively successful in limiting the growth of prescription costs to the rate of inflation - despite a significant increase in demand. As the Australian Health Review describes, its formation in 1993 was followed by near constant litigation from drug companies, which meant that legal costs accounted for 18% of its budget in early years. Drug companies complain that New Zealand is failing to pay its fair share of research costs, a claim I find pretty self-serving, given record profits the pharmaceutical industry reported in 2010 (averaging more 15-20% of revenue -- see http://en.wikipedia.org/wiki/List_of_pharmaceutical_companies), their exorbitant CEO salaries, the billions spent on developing and marketing me-too drugs, and marketing criminal penalties for fraudulent business practices (see http://www.huffingtonpost.com/2010/03/20/drug-companies-shrug-off_n_506962.html).
Especially as the taxpayers funded the research, at the National Institutes of Health and Veterans Administration, for some of the pharmaceutical industry's most profitable drugs (for example, Taxol and several HIV drugs). After covering the lion's share of the costs (i.e. research), the federal government turned these discoveries over to drug companies to be mass produced - and earn them billions of dollars in profits.
*A recent Wikileaks cable release reveals New Zealand's National-led government is contemplating scrapping PHARMAC as a condition of a new free-trade agreement with the US (see http://www.scoop.co.nz/stories/WO1012/S00643/wikileaks-no-quick-fix-for-pharmaceutical-market.htm).
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