Increasing demand drives up pharmaceutical prices

Increasing demand for prescription drugs drives up prices and overall costs, but that demand reflects the premium that people place on improved well-being, say analysts.

Consumers demand new drugs because they offer enormous benefits. New medicines save thousands of lives and reduce hospitalisation rates but are also extremely expensive to develop:

On average, each new drug approved in the USA during the period 1970-91 is estimated to have saved 11,200 life-years in 1991.

One U.S. study figured that every $1 increase in pharmaceutical expenditures lowers hospital spending by $3.65.

Drug companies spend nearly one-third of their capital on research and development costs.

A drug company typically spends $802 million over the course of 10 to 15 years to develop a new drug, from the time research begins until Food and Drug Administration approval.

Among the changes that would improve drug access and affordability, U.S. analysts recommend:

Changing the drug administration approval process so that potentially life-saving drugs are tested and brought to the market faster.

Lowering consumer costs by moving more drugs like antibiotics, contraceptives and allergy medications to over-the-counter status.

Encouraging private charity by drug companies and foundations to offer discounted or free drugs to uninsured citizens in the United States and in impoverished patients abroad.

Source: Doug Bandow, Demonizing Drugmakers: The Political Assault on the Pharmaceutical Industry, Policy Analysis No. 475, May 8, 2003, Cato Institute.

For text http://www.cato.org/pubs/pas/pa-475es.html
For more on Economics of Drugs http://www.ncpa.org/iss/hea/

FMF Policy Bulletin/ 8 July 2003