WashingtonCAN

The Pharmaceutical Industry is the most profitable industry in the world.

In 1998, the pharmaceutical industry ranked first on all three of Fortune 500 indexes - return on revenue, assets, and equity. The industry’s median return on revenue grew by 30% in the 1990’s and its median return on equity grew by 32% in the 1990’s. In 1998, the industry’s profit as a percentage of return on equity was almost 40%, compared to 13% for the rest of the Fortune 500. According to this year’s Fortune 500 review, with over $20.3 billion in profits among them, pharmaceutical companies topped the automotive industry, the seven oil companies, the airlines industry, and the entertainment industry.

The top ten drug companies have spent nearly three times more on marketing, public relations, and administration than they did on research and development in 1999, according to their annual reports to shareholders.

The industry defends this spending as serving an educational function for both providers and consumers. Relying on the industry that manufactures and makes money off of every purchase to "educate" the public in any unbiased or objective way about the same product is preposterous. The truth is, marketing and advertising is meant to sell drugs.

In a June 23, 1999 report, Merrill Lynch concluded that the toughest proposal on the table in Congress, the Prescription Drug Fairness for Seniors Act (H.R. 664/S. 731), which provides a 40% discount on drug costs for all 39 million Medicare beneficiaries, would result in an increase in the volume of sales that would offset much of the loss from reducing prices.

According to Merrill Lynch:

• Volume is more important than price in driving pharmaceutical company sales growth. Between 1994 and 1998, the impact of volume on sales growth outpaced price by better than a 4 to 1 ratio.
• Medicare beneficiaries who either lack or have inadequate drug coverage under-utilize prescription drugs because they cannot afford them. With a 40% price discount, the one-third of beneficiaries who lack any drug coverage would increase their consumption by 45%, and two-thirds with some coverage would see a 10% increase in drug purchases.

According to PhRMA, "By keeping free-market incentives strong, we can give the green light to the innovation that will lead to better health."

"The U.S. is the world leader in pharmaceutical innovation - at least in part because of its (relatively) free market for pharmaceuticals."

The Drug Industry Enjoys extraordinary government protections and subsidies. Much of the early basic research that may lead to drug development is funded by the National Institutes of Health. It is usually only when development of a drug shows promise that the drug companies become involved. The drug industry also reaps significant tax advantages. Both its research and development and marketing expenses are tax deductible. In fact, from 1993 to 1996, the pharmaceutical industry was reportedly taxed at a rate of only 16.2%, while all other major U.S. industries were taxed at a rate of 27.3%. Most importantly though, the pharmaceutical industry enjoys 17-year government granted monopolies on their new drugs (patent protection). Once a drug is patented, no one else may sell it, and the drug company can charge whatever the market will bear.

Cost isn’t the problem, coverage is...

According to PhRMA, "The underlying problem is that about one-third of seniors lack prescription drug insurance coverage. But two-thirds do have some sort of coverage. So we’re really talking about a very limited number of seniors who lack coverage and cannot afford to purchase it."

Prescription drug costs are spiraling out of control. According to a study released by Families USA in April 2000, in each of the past six years, the prices of the 50 prescription drugs most used by older Americans have increased considerably faster than inflation. While senior citizens generally live on fixed incomes that are adjusted to keep up with the rate of inflation, the cost of prescription drugs they purchase most frequently has risen at approximately two times the rate of inflation over the past six years. Even for seniors fortunate enough to have additional coverage, the affordability of prescription drugs is a significant and growing concern. Often additional coverage is inadequate, with high co-payments, low caps on overall drug coverage and restrictions on the drugs that can be prescribed. Those without any coverage are often forced to chose between food and medicine, skip doses, or split pills.

There is also a growing number of uninsured people in the United States and here in Washington that do not have access to any prescription drug coverage. And, like our seniors, even those that do have health insurance, may not have adequate access to needed prescription drugs. We need to fight for solutions to help both our seniors and other uninsured residents here in Washington.

We must continue fighting on the national level to address this problem, with a guaranteed prescription drug benefit in Medicare and use the buying power of all Medicare beneficiaries to negotiate the lowest price possible.

We must do all we can in Washington State to find and implement real solutions that use the buying power of all Washington’s seniors & uninsured to force down the costs of prescription drugs in our state.