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"The Rising Cost of Prescription Drugs"

Part 1

"Managed Care" or "Managed Profits"

As individuals, we have all watched the costs of prescription drugs rise at an alarming rate. As newer drugs are developed to treat various ailments, we find ourselves spending more and more money to gain access to these drugs which will help to make us healthy. As employers, we find ourselves paying more and more for medical insurance benefits for our employees.

We are constantly told that one of the biggest reasons for rising health care costs are the rising costs of prescription drugs. Insurance providers tell us that the drug manufacturers need to re-coop their R&D costs for the hundreds of new drugs being researched and developed. The FDA approval process, clinical trials and testing all add to these costs.

So, as more and newer drugs are manufactured, and as the demand for these drugs increases, the costs for these drugs continue to rise at an astronomical rate. These costs are ultimately passed on to the consumer.

In an effort to deal with the rising costs of health care, the concept of "managed care" came into existence. It was thought that by coordinating the delivery of health care services, it might be possible to manage the costs related to health care. Itís not working! The costs of prescription drugs (which will be dealt with in this article) is just one example of how managed care has done little but manage the profits of a few.

The staff of US Senator Byron Dorgan (D-ND) has compiled a great deal of information about the differing costs of prescription drugs sold both in the US and other countries. I will cite some of their information here, and will include more of their data later on in this commentary. The information developed by Senator Dorganís office can be accessed at: http://www.senate.gov/~dorgan
"In a speech on the Senate floor, Dorgan cited two examples of FDA approved medicines, manufactured by the same company and sold under the same brand name, but which are sold at substantially different prices in the U.S. and Canada. Claritin, a popular allergy fighting drug, carries a $218 wholesale price in the United States, but is wholesale priced at just $61 in Canada. Cipro, a prescription drug used to treat sinusitis and lower respiratory tract infections, is priced 233% higher in the United States. The wholesale price here is $399. The wholesale cost across the border in Canada is $171, Dorgan said."
Now, I know the pharmaceutical manufacturers have to charge enough to cover the expenses related to R&D and compliance with all regulatory agencies. I know itís very expensive to attain effective market penetration for a new product. But, with the above mentioned examples, Iím curious to know if US drug manufacturers are subsidizing their customers in foreign markets by charging their US customers more for the same product.

Whatís also interesting is the exporting expense. If a drug is manufactured in the US and sold in the US, one might assume that the same drug would sell for more in another country to cover the expenses related to shipping that product to the foreign country. How can something cost more when locally sold, than when sold in a foreign market? Maybe Iím just missing something!

But, letís try another angle on this. If drug "A" sells for $300 in the US, but sells for $100 in Canada, why not just go to Canada and buy drug "A" for $100 and import it back into the US. I am sure that the importing and shipping fees would still allow for the cost to be far less than the US price of $300. Unfortunately, the US Government makes it illegal to import a drug from a foreign country into the US if that drug is already being manufactured in the US.

So, is the fair market price for drugs higher in the US than in other countries. If the drug is manufactured by the same company, made from the same ingredients, packaged in the same box, has the same name, and is approved by the FDA, why does this drug cost more here than anywhere else in the world?

Or, how about another angle. Letís assume that a US drug manufacturer has invested in the development of a manufacturing facility in a foreign country. It could be possible that the raw material and labor costs in the foreign country are less than in the US, resulting in a lower sales price for the drug. If this is the case, then wouldnít it benefit the US consumer to be able to import these foreign manufactured drugs which would sell in the US for less than what US manufactured drugs sell for?

One would think that managed care concepts would have helped to control and stabilize these prices. What appears to have happened is that managed care has helped to manage and guarantee unrealistic profits for various industries. The US consumer is paying far more than the fair market price for many of these products. But as long as the health care industry and the US Government allow this process to continue, it might be advisable to take a vacation to a foreign country every time your doctor issues you a prescription. Be sure to bring your prescription with you, and get it filled at a reputable pharmacy while in the foreign country. The cost savings might help pay for the trip!

Despite my critical comments, there are people in Government who are attempting to deal with this issue. Some of the attached information will illustrate the excellent efforts of one US Senator and some of his colleagues. Also, there are health care providers who are attempting to deal with this issue as well (but that will be discussed in later commentaries).

I encourage you to review the attached information. Hopefully, the comparative financial information wonít cause you to have too much of a headache which results in you having to obtain a prescription drug to relieve the pain.

Mark S. Deion
27 August 1999

© Copyright 1999

The following information has been copied in context from US Senator Byron Dorganís (D-ND) web site at: http://www.senate.gov/~dorgan/prescriptioncosts.html   Senator Dorgan has introduced legislation in an attempt to deal with the rising costs of prescription drugs. I seriously recommend that you review the legislation he has introduced. A sincere "Thank you" goes out to Senator Dorgan and his staff for the compilation of this information.

The High Cost of Prescription Drugs

Rising Drug Costs Are a Pain

Like many of you, I have been growing increasingly concerned about the rising costs of prescription drugs. Unfortunately, prescription drug prices continue to increase at a rate much higher than inflation. In 1998, prescription drug prices increased by a whopping 16%, significantly more than the 3.4% overall increase in health care spending.

This trend is particularly troublesome for older Americans and others who are forced to pay for their medications out-of-pocket. Older Americans spend an average of 19% of their fixed incomes on health care - much of which can be attributed to prescription drugs. Many older North Dakotans tell me they are being forced to choose between their medicine and other necessities like food and heating their home. That's just not right.

To make matters worse, many Americans are the victims of unfair pricing practices by pharmaceutical manufacturers. For one, we know that American consumers are being charged much higher prices than their counterparts in other countries. On average, prescription drugs in the U.S. are priced 34% higher than the exact same products in Canada. For instance, a bottle of Valium that costs $49 in the U.S. costs only $9 in Canada.

Prescription Costs in U.S. are Much Higher than Other Countries




Older Americans are also paying more for their medications than prescription drug manufacturers' "most favored customers," such as large insurance companies and health maintenance organizations. In fact, the average senior citizen pays twice as much for their medications than pharmaceutical companies' favored customers, and for some drugs, the difference is as much as 1,446%!

    Senior Citizens

Prescription for More Affordable Medications I am working on a number of fronts to help ensure that prescription drug manufacturers adopt fair and reasonable pricing practices.
  • I will soon be asking the General Accounting Office, the investigatory branch of Congress, to update its research on pricing inequities for American consumers versus their counterparts in other countries.

  • I have cosponsored the Prescription Drug Fairness for Seniors Act of 1999, which would allow Medicare beneficiaries to purchase prescription drugs at the same lower prices that pharmaceutical manufacturers charge their most favored customers.

  • Last year, when I heard from North Dakotans about the dramatic increase in the price of some of their generic medications, I wrote to the Federal Trade Commission asking them to investigate. As a result, the FTC has now filed a complaint in federal court against the prescription drug manufacturer, seeking monetary relief on behalf of consumers.
But I still need your help. I need to hear your story about the prescription drug price increases you've experienced and the difficulties they've caused you. If you've experienced or witnessed any outrageous increases in prescription drug prices recently, I hope you'll take a few minutes to fill out the form below. Armed with this information, I can try to get to the bottom of these increases and persuade my colleagues in Congress about the need for legislation in this area.

Tell me how much your prescription cost you?


1.1991 General Accounting Office report

2.Minority Staff Report of the U.S. House of Representatives' Committee on Government Reform and Oversight. "Prescription Drug Pricing in the United States: Drug Companies Profit at the Expense of Older Americans." October 20, 1998.

An additional document has been copied from Sen. Dorganís web site which is a press release titled:


This press release is dated June 9, 1999 and is in .pdf format. The comparative data provided in this document illustrates the need for this type of legislation.

PDF files require Adobe's Acrobat Reader. If you don't have this program, you may download it free by clicking on the Acrobat Reader icon below.

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