High Prices

Monday, November 1st, 2004

Malcolm Gladwell examines the High Prices of pharmaceuticals:

The “intolerable” prices that Angell writes about are confined to the brand-name sector of the American drug marketplace. As the economists Patricia Danzon and Michael Furukawa recently pointed out in the journal Health Affairs, drugs still under patent protection are anywhere from twenty-five to forty per cent more expensive in the United States than in places like England, France, and Canada. Generic drugs are another story. Because there are so many companies in the United States that step in to make drugs once their patents expire, and because the price competition among those firms is so fierce, generic drugs here are among the cheapest in the world. And, according to Danzon and Furukawa’s analysis, when prescription drugs are converted to over-the-counter status no other country even comes close to having prices as low as the United States.
The second misconception about prices has to do with their importance in driving up over-all drug costs. In one three-year period in the mid-nineteen-nineties, for example, the amount of money spent in the United States on asthma medication increased by almost a hundred per cent. But none of that was due to an increase in the price of asthma drugs. It was largely the result of an increase in the prevalence of usage — that is, in the number of people who were given a diagnosis of the disease and who then bought drugs to treat it. Part of that hundred-per-cent increase was also the result of a change in what’s known as the intensity of drug use: in the mid-nineties, doctors were becoming far more aggressive in their attempts to prevent asthma attacks, and in those three years people with asthma went from filling about nine prescriptions a year to filling fourteen prescriptions a year. Last year, asthma costs jumped again, by twenty-six per cent, and price inflation played a role. But, once again, the big factor was prevalence. And this time around there was also a change in what’s called the therapeutic mix; in an attempt to fight the disease more effectively, physicians are switching many of their patients to newer, better, and more expensive drugs, like Merck’s Singulair.

Asthma is not an isolated case. In 2003, the amount that Americans spent on cholesterol-lowering drugs rose 23.8 per cent, and similar increases are forecast for the next few years. Why the increase? Well, the baby boomers are aging, and so are at greater risk for heart attacks. The incidence of obesity is increasing. In 2002, the National Institutes of Health lowered the thresholds for when people with high cholesterol ought to start taking drugs like Lipitor and Mevacor. In combination, those factors are having an enormous impact on both the prevalence and the intensity of cholesterol treatment. All told, prescription-drug spending in the United States rose 9.1 per cent last year. Only three of those percentage points were due to price increases, however, which means that inflation was about the same in the drug sector as it was in the over-all economy. Angell’s book and almost every other account of the prescription-drug crisis take it for granted that cost increases are evidence of how we’ve been cheated by the industry. In fact, drug expenditures are rising rapidly in the United States not so much because we’re being charged more for prescription drugs but because more people are taking more medications in more expensive combinations. It?s not price that matters; it’s volume.

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