Healthy Skepticism Library item: 8577

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: Journal Article

Lee AM.
Interdependence of prescription drugs and other health care costs
Drugs Healt -Care 1975; 2:(2):75-85

Abstract:

Some of the major misconceptions concerning the economic structure of the pharmaceutical industry and its market are examined. Cost controls applied to drugs in isolation can increase costs in other sectors of health care. Further, drugs have been the least inflationary factor in health care costs; the average size-adjusted prescription charge in 1974 was lower, in current dollars, than in 1960, while per capita disposable income doubled over the same period. Multiple versions and variations of a drug provide both therapeutic and price competition, and the costs of this product proliferation are overshadowed by the social benefits. The high marketing expenditures of research based manufacturers serve a legitimate purpose in communicating information on the availability and proper use of prescription drugs to physicians. The high average rate of return on investment, as measured by conventional accounting procedures, tends to overstate the profits of industries with a high investment in advertising and research. Premiums which one brand of a drug may command over other versions not only supply necessary profits but provide the cash flow required to support heavy research investments, including investments in basic research. Savings in government reimbursement for multiple source drugs projected under the Maximum Allowable Cost (MAC) program of HEW are overestimated and might easily be exceeded by the administrative costs of the program. Effective utilization review, including review of drug prescribing, and better physician access to information on drug prices, can foster rational drug therapy and reduce waste in drug expenditures more effectively than can arbitrary controls imposed solely on the drug component of health care.