Drug Costs Soar (Again) in 2009

Prices for brand-name prescriptions soared 9.1 percent during 2009, which was the largest increase in the past five years, according to Express Scripts, a pharmacy-benefit manager quoted by the Wall Street Journal.

For 2009, the Bureau of Labor Statistics reports that the Consumer Price Index for Urban Consumers (CPI-U) rose 2.7, so branded prescriptions rose about 3.4 times faster than the all-items CPI-U.  For 2009, Medical Services component of CPI-U increased only 3.4 percent, meaning branded prescription drugs rose 2.7 times faster.

For 2009, CPI-U measured the increase in professional services at only 2.5 percent.  Even hospital and related service costs, one of the most rapidly increasing components of medical services, rose just 7.1 percent.  So branded prescriptions rose 3.64 times faster than physician services and and 32 percent faster than hospital costs. 

As Kaiser reports here, there have been many years in which prescription drug pricing has outpaced other health costs.  In fact, 2009 represents the eleventh year of the past 14 in which drug prices have risen faster -- sometimes far faster -- than the prices of professional services or hospital care.  Here's the picture.  (Click to enlarge graph.)

Unlike the rest of the world, the United States allows pharmaceutical manufacturers to establish their own prices for branded prescription drugs, while providing them exclusive marketing rights through patent protection.  The rest of the world has moved beyond that stage, negotiating prices with pharmaceutical manufacturers to make sure necessary medicines are available at the lowest possible price.

We can insist on American exceptionalism.  We can believe our way is best.  But to the rest of the world, we must look like the guy still wearing a leisure suit, white belt and white shoes to the office.

The pharmaceutical manufacturers insist that their enormous profit margins are critical to the development of new drugs. There is no doubt that the research and clinical testing required to bring new drugs to market is expensive, costing tens of billions of dollars.  But there is no reason why Americans should be the only people to shoulder this cost.

Pharmaceutical prices are higher in America, because governments in Canada, Great Britain,  France, Germany, Japan and the rest of the developed world control the prices of drugs sold in their countries.  So pharmaceutical manufacturers, both American and foreign, turn to the vulnerable American consumer to generate the profits required for drug research.

The American consumer has the wealth to pay more, and lacks the price protection governments provide in the rest of the world.  The American consumer is easy prey.  If America decided to negotiate the prices of drugs sold in this country, does anyone believe that drug companies would give up the search for the new products required to sustain their existence?

More likely, the worldwide pharmaceutical industry would be forced to do the hard work of negotiating better prices for its products with other industrialized nations if it lost the American consumer as its profit patsy.  This would spread the cost of drug development to all people around the world who benefit from the effort, rather than expecting the American consumer to bear most of the cost.  

In my next post, I'll provide some examples of how much more Americans pay for prescription medicines because we refuse to deal with pharmaceutical manufacturers like the rest of the world does.