Paying Too Much for Your
PRESCRIPTION DRUGS?

  Drug Industry Most Profitable, Survey Finds:
Updated: Thursday, Nov 29, 2001 7:02 PM EST
By Maggie Fox, Health and Science Correspondent

WASHINGTON (Reuters) - The drug industry, which spends more than any other industry on consumer advertising, is also the most profitable, researchers said on Thursday. The Kaiser Family Foundation, a non-profit organization that does research into health and family issues, said Americans are buying more and more drugs and are spending more and more for them. "Compared to other industries, the pharmaceutical sector continues to earn the highest profit rates," the report, available online at http://www.kff.org, reads. "Profits as a percent of revenues for the pharmaceutical industry have been more than four times the median rate for all Fortune 500 firms in the late 1990s (18.6 percent of revenues compared to 4.5 percent for all Fortune 500 firms in 2000.)" The foundation's Larry Levitt, who helped direct the study, said Americans fill 3 billion prescriptions a year, or 11 per person on average. "We now spend $117 billion a year on drugs," Levitt told a news conference. "We are taking more drugs," he added. Meanwhile, pharmaceutical companies are developing more and more prescription drugs. "As these new drugs come on the market, the average prices of drugs continues to go up," Levitt said. He said all 20 top-selling drugs are brand-name. "The result is the average price of a prescription is now $45 -- double what it was 10 years ago." This is triple the average generic price. "So efforts to encourage the use of generics have not helped a great deal and in fact may have failed in reducing costs," Levitt said. Costs may be increasing due in part to the huge amount that companies spend advertising their drugs to potential patients and promoting them to doctors, Levitt said. "Since 1996 the amount spent on drug ads has more than tripled," he said.
He said drug companies spent $15.7 billion promoting drugs in 2000, or 14 percent of revenues. That compared to 3.7 percent of sales revenues spent on promotion by department stores, 3.9 percent for tobacco products, 10.7 percent for soap and detergent and 12 percent for games and toys. "Drugs are among the more promotion-intensive products," Levitt said. "In terms of promotional intensity, drugs look most similar to toys and dolls." The report found that drug companies spend only 14 percent of revenues on research and development, although drug companies often argue that drugs are expensive because they cost so much to develop. "Profits also exceeded R and D (24 percent compared to 14 percent)," the report reads. But Americans, and their insurance companies, are buying and will probably continue to do so as the population ages. "National spending for prescription drugs, projected to be $116.9 billion in 2000, has almost tripled since 1990," the report reads. "Although prescription drugs represent only 10 percent of personal health care spending, they are the fastest growing segment of health care spending, accounting for 20 percent of the estimated increase in such spending between 1999 and 2000," it says.

New Reports Show Impact of Direct-to-Consumer Advertising and Trends in Prescription Drug Spending and Utilization
National spending on prescription drugs is the fastest growing segment of health care spending, accounting for 20% of the estimated increase in such spending between 1999 and 2000. Spending on advertising directly to consumers increased nine-fold from $266 million in 1994 to nearly $2.5 billion in 2000, largely due to growth in television advertising (13% of direct-to-consumer spending in 1994, rising to 64% in 2000). A new survey report finds that nearly one in three adults has talked to a doctor and one in eight has received a prescription in response to a seeing an ad for a prescription drug and provides information on how consumers react to seeing various ads. A separate report outlines trends in prescription drug expenditures and factors driving their growth and prescription drug utilization, including types of drugs used.
 

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