Increasing demand drives up pharmaceutical prices

July 16, 2003

Free Market Foundation

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