In today’s tough economic times consumers desire value for their money. Health care is no exception. The pharmaceutical industry has been heavily criticized for contributing to escalating health care costs through high drug prices. Not only is there a serious problem with the rising cost of health care; but also the rising cost of pharmaceuticals.
A substantial portion of the average wholesale drug cost is due to promotional expenses. The Senate Labor and Human Resources Committee report of 1991 indicated that at least $5 billion of the total sales revenues, of $32.4 billion in 1989 for PMA (Pharmaceutical Manufacturing Association) companies, was spent on marketing, 15% of their revenues, more than $8000 per physician in the United States. Stephen Schondelmeyer, a pharmaceutical economist at the University of Minnesota, says that pharmaceutical companies spend $14 billion a year, more than 20% of revenues, on promoting their products.
Some promotional and educational expenses are necessary to educate physicians about new drug products. However, there is mounting evidence to suggest that there is a substantial amount of time and money being spent to promote and convince physicians into prescribing a drug company’s product.
Pharmaceutical promotional expenditures are enormous. An inquiry by the Senate Committee found that 18 PMA firms spent $165 million on symposia, gifts, and reminder items (logo-embossed pens, notepads, coffee mugs, etc.) in 1999, up from $34 million in 1975 (inflation-adjusted).
Intense competition and many “me-too” or substitutable products have forced the use of aggressive marketing tactics such as gifts to physicians. The prevalence of “me-too” products was substantiated in a 1990 study investigating the therapeutic value of new drugs introduced in the United States. During the period between 1995 and 2010, only 42% of the NCEs offered therapeutic benefits. Thus, over half of all drugs introduced in the U.S. were found to offer no additional therapeutic benefit.
Furthermore, excessive amounts of promotional activities and money being spent by pharmaceutical companies (PC) to influence physicians prescribing presents a serious problem by driving up the cost of prescription drug products to consumers. In an investigation headed by Senator Edward Kennedy, Kennedy stated that “consumers finance these marketing practices, which deliver no health benefit, through higher drug prices”.
Drug prices increased by 88% during the period between 1991 and 2012, whereas the increase in the general inflation rate was 28%. Even though drugs accounted for only 7% of health care costs, their rising costs are a serious concern.