The economic system of medical products and services are different from other products and services in the market. When health care costs fall then consumers use more of it. In 1980, around 66 percent of spending on drugs came out from patient’s pocket. Now that percentage is 30. Actually rising drug costs are driven by increases in the volume of drugs consumed by the consumers, not always by rising drug costs. A key feature of the pharmaceutical companies is that drugs can be produced at a variable cost of pennies per pill. But what they do? They incur high-fixed R&D costs to bring new drugs into the market. But however, if these manufactures were paid prices that returned their variable cost, then the average cost of a drug would not be covered and as a result the company would certainly lose money. It implies that fixing lower price will diminish company profits and R&D efforts may be reduced. Then it would result a diminished flow of new drugs. What are the reasons behind increasing drug consumption rapidly is very important to understand. One reason of growth is the progress of new drugs which is consumers demand. From 1997 to 2000, costs on new drugs accounted for over 40 percent of the growth in spending on medicines (Bond, 2003).

Economic effect of increasing prescription drug usage

United States spends almost 15 percent of its GDP on health care system, which is highest rate among the OECD countries (Okunade, 2002). U.S. elderly are het highest per capita users of prescribed medicine (Okunade, 2002). However, as the elderly population increases, drug costs continue to rise unabated with the use of new and expensive prescriptions. Therefore, rising prescription drug costs are a major concern for running health care system smoothly.

In United States, the consumers experienced to pay for the prescription drugs 400% than the other counterparts in Europe. In some drugs the price is 10 times more than the others. It is recommended that the pharmaceutical companies should charge high price for those consumers whose valuation of product is high than whose valuation of product is low. The logic behind this pricing strategy is that the consumer who values a product highly will pay more than the consumers who remains indifferent to the product.

Prescription drug has become an essential component of health care. Millions of Americans are in need for prescription therapies for their health. The growing rate is almost twice as fast as other medical service in recent years. Recently, public attention has grown and their focus is on the pharmaceutical industry and prescription drugs. It is because the drug costs have rapidly increased and a significant portion of entire population lacks insurance to face the drug costs they need.

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