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Physicians in United States are concerned about the health and well being of the patients. Both the patients and physicians expect that medicine, which will do the job effectively, with fewer side effects and at a price that everyone can afford. To do so, price cuts and re-import would be the best solution. Price cuts would prompt a large rise in consume of needed medications.

Besides these steps, there is some other strategy that also should be implemented. If the policy makers want to do the task easier, they can implement the following suggestions:-

Formulation: Formulary information should be available to physicians. It can be done through making all federal pharmacy plan formularies available into central location. Different types of formularies are the cause of high drugs cost. As one policy does not match with another policy, that

The following table shows the Percent change in manufacturer prices in 2004 for rheumatology-related drugs in the top 25 brand-name prescription drugs (Rheumawire News, 2005).

Drug trade name and dose


% change in manufacturer prices

Fosamax 70 mg



Lipitor 10 mg



Lipitor 20 mg









Protonix 40 mg



Nexium 40 mg



Actonel 35 mg

Proctor and gamble


Pravachol 40 mg

Bristo-myers squibb


Pravachol 20 mg

Bristo-myers squibb


Evista 60 mg



Lipitor 40 mg



Toprol xl 50 mg



Zocor 20 mg



But, recently prescription drug users are becoming price sensitive due to global financial crisis. May be for that reason, 20% of prescription drug users cited price as a reason for switching retailers in January 2009, which is up from 16% in 2008 (Medical News Today, 2009). Consumers say they are spending an estimated 3% less on prescription drugs this year versus last year thanks, in part, to the economic downturn, according to Kurt Salmon Associates’ recent evaluation of more than 8,000 shoppers’ opinions (Medical News Today, 2009).

This decline is the result of continued shift towards the lower-cost generic drugs and growth of consumers who are looking to save money by simply reducing overall drug consumption. But this situation is worse than previously anticipated. Due to global financial crisis, the economic condition is vulnerable. For this reason, the high price of prescription drug will affect the economy adversely much more than previously anticipated.

The Medicare prescription drug improvement and modernization act of 2003 addresses prescription drug costs for Medicare beneficiaries (Wagner, et. al., 2001). It enhances on some important issues to solve and therefore to manage the over coming problems regarding prescription drugs.

According to a report estimated by Boards of Trustees of the Federal Hospital and Medical Insurance Trust Funds, The drug benefits total cost in United States is about $16.6 trillion in present value terms (Antos & Gokhale, 2005). In Medicare field, the already financial massive shortfall without the new benefit is some $45.0 trillion. In 2006, when the full phase-in of prescription drug coverage is completed, Medicare’s projected expenditures will immediately jump to 3.4 percent of GDP (Antos & Gokhale, 2005).

So, this rapid growth for prescription drugs is very difficult to sustain, even for the largest economy in the world. Prices of a number of drugs have tremendously in recent time when people are trying to struggle with ongoing financial crisis and rising prices of essentials. According to a report the recent following information are very important to consider.

                  In December 2005, the average cost of ten drugs was $1,114, but just after two months it increased to $1194, a 4.3% increase. In 2005, the total increase for these drugs was 3.4%.

                  9 out of 10 drug plans increased the prices from December 2005 to February 2006.

                  7 out of 10 drugs increased their price from December 2005 to February 2006.

                  The drug that was planned to lowest price experienced the greatest price increases.

But however, may be for this reason, many Americans turn a critical eye on these pharmaceutical companies, thinking that these companies have been profiteering from the peoples for years illegally. One of the reasons is that, they have to pay over twice as much as their European counterparts for the same prescription drugs. This fact has led many to complain against United States for subsidizing European health care.

The increased inability of a growing number of patients to pay for prescribed drugs has important effect for population health care and health system costs. Prescription noncompliance is relevant to upper levels of emergency department admissions. Failure to get prescribed drugs can have serious health consequences for the people and substantial economic consequences for society.

An estimated 16.6 million Americans reported being unable to purchase a prescribed medication in 2002 (WSU Magazine, 2004). So, this number has a great political significance as well as economical significance. If such prescription noncompliance leads to undesirable health outcomes and unaffordable health service cost, then surely the economic effect would be substantial. So, from the social, political and economical point of view it is to be said as one of the most controversial problem for general American population.

What is the overall economic effect of this situation it represents? High price of new prescription drugs is the cheapest against rising overall medical expenses. The correlation between change in drug use and costs and other medical services and costs needs to be realized.

During the period of 1990-1998, real per capita expenditure on prescription drugs in the U.S. increased by 84% (Okunade, 2002). In the beginning of 1993, average annual percentage increase in prescription drug spending exceeded the overall percentage increase in national health expenditure (Okunade, 2002). According to estimation, prescription drug spending by the Medicare population is increasing and will be $445 billion by 2012. In 1990, only $40.3 billion was spent on prescription drugs, compared to these large amounts. In 2000, $140.8 billion was spent by both public consumers and private consumers. In 2001 it increases by 21 billion more to $161.8 billion. In 2002, the consumption on prescription drugs jumped to $179.2 billion. But by the time of 2015, it would be $720 billion.


So, it’s a huge cost for any sector and government is concern for increasing prescription drug costs. Because from the economic perspective, it can be said that inadequate drug coverage can lead to financial destruction for individuals. The report surveyed by the Kaiser family foundation and the Harvard school of public health, says that 1 out of 10 Americans has spent $1000 or more direct out of pocket on prescription drugs. But, by 2010, more than 15% of annual expenditure on personal health care will be spent only on prescription drugs. This percentage was 9% in the year 1999 (Berger, et al., 2001) 9.4% in 2000 (Cowper, et. al., 2004).

Since the drug cost has been increased, it is affecting the health care as well as economy of the country. The high cost of prescription drugs has made it difficult for many low-earned people to afford medications their doctors recommend though they deserve an affordable drug benefits. There is lack of correlation between population’s ability to pay and the price of prescribed drugs, though U.S. is the biggest economy in the world.

The Americans are paying much more for less benefits and that is the concern for the low-income levels public. The system the Americans got is not working and day by day they are facing a nationwide economic healthcare crisis. Certainly, increase in prescription drug price is the reason behind it. It seems to be the over-price of prescription drugs is bankrupting the healthcare process of the United States.

The people are spending a lot of money only for purchasing prescription drugs which sometimes costs out of his or her ability. For example, in a family where there are 4 members. If each person spends $800 every month, then the annual spending for the whole family would be $38400. But they are spending half of the amount more than the Europeans. It is because; the price of the same drugs is half of the Americans market price. Thus, the surplus spending is affecting the family expenditure as well as the economy.

A large portion income is abusing for the American people due to increase in prescription drugs. This cost consumes the rapidly rising share of people’s income. This share varies a lot among the states, a new study finds. From the economic point of view in future it would be worse than current situation. The burden heaviest in sicker, poorer, older states and where more people are out of insured. According to a report by Health Reform Program at the Boston University School of Public Health, the burden were greatest in Tennessee, West Virginia, Kentucky, Mississippi, Louisiana in 2002.

The prescription drug spending cost reflects average prescription prices filled per person. The total spending is divided by total income to compute the drug cost burden in a state.

Those states are suffering heavy drug cost burden where burden is increasing fastest and are likely to feel to act politically to lower drug prices. The prescription drug cost is appeared as ticking time bomb. The taxpayers and patients, particularly in these high burden states, cannot afford to spend more. Therefore, the report concludes, “cutting drug prices is the only way to lower drug cost burden and expand use” of needed medicine.

Overall through country, many people still lack of needed prescribed drugs

A large portion of American people are unable to afford for medications they are prescribed for and this medication costs are not only problem for elderly patients. A recent data shows that the number of Americans unable to take their medications as prescribed due to cost grew from 12.6 million in 1997 to 16.6 million in 2002 (WSU Magazine, 2004).

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.

Outrages facts about the pharmaceutical industry

                  Profitable business: pharmaceutical industry claims that it’s a high risk business. But the fact is that year after year this industry is earning higher profit than any other industry.

                  Innovative drugs: this industry claims to be innovative to produce new and better drugs for health, but only a small fraction of its new production are truly innovative. In 2002, approved by FDA, only 17 out of 78 drugs contained new active ingredients and 7 were just the improvement of existing products.

                  Me-too drugs: the most profitable drugs are not better than the existing products. There is no reason to believe that the new drugs are better than the previous one.

                  Research done at elsewhere: most of the innovative drugs usually stem from research done at university or government labs.

                  Spending cost: only 14 percent of revenues earned by the drug industry is spent on R&D for so called new innovative drugs and 31 percent on marketing and administration. The industry claims that it requires $802 million each new drug to bring to the market. But it is not true, because the independent analysis says that the actual figure is a small fraction of the amount.

                  No drug cost regulation: The U.S. is the only advanced country that has no drug cost regulation in some way. Other countries in Europe spend only half as much for the same drugs in U.S.

                  Lobby: Compared to the other industry, the pharmaceutical industry has the biggest lobby in Washington, with more than elected representatives. They contribute a large amount to political campaign to get the advantages in favor for them.

                  Persuading people: to increase sales, this industry persuades the public in wealthy countries that they are suffering from such and such conditions that they need long-term treatment.

Every year United States has to spend a huge amount of money for prescription drugs. The spending on prescription drugs is increasing rapidly. The increased rate of expenditure from 1987 to 1994 is by 12% and from 1994 to 2000 is by 12.9% (Berndt, 2002, p. 47 & Bond, 2003). But this increase in expenditure has been a matter of great concern for the businesses, consumers, economic policymakers. Unfortunately the reasons for increasing are widely misunderstood by the politicians as well as by the general publics. What the politicians think that the price of drug is increasing is not always true. Another reason behind increasing drug cost is the increase in the consumption.

Pharmaceutical industry’s traditional viewpoints

The pharmaceutical industry shows several reasons behind high drug price. One of them is the increase of consumption. For example, Due to an increase in drug prices, over half of the drug expenditure increased in the time between 1987 and 1994. The remaining half was due to increased in drug consumption. But from 1994 to 2000, due to price increasing, less than quarter drug expenditure increased. And over 75 percent coming from increased consumption. Recent data support this point. In 2000, drug costs increased by 14.1 percent and 16.9 percent in 2001. So costs increased in both of these years were stimulated by increased drug consumption. On the other hand rising drug prices caused less than a third of the increase. So these reports show that increase in drug consumption is the primary driver for rising pharmaceutical spending, not the increased price of drugs being consumed.

The pharmaceutical industry represented by PhRMA gives the reason behind high prescription drug price. They say that the drug price is high because the industry needs to spend huge expenses on research and development (R&D) to bring out new, innovative drugs for better health and extended lives. They also say that without paying this high by the consumers, new drugs will not be developed resulting in a devastating impact on health.

Real reasons behind increase in drug price

The argue made by the pharmaceutical industry that because of research and development cost for new and innovative drugs, the price of the prescription drugs are high, is not acceptable. It is totally false targeted to mislead the public from truth. With the help of that book it can be analyzed.

Dr. Marcia Angell, former editor of the New England journal of medicine in her recently published book,”the truth about the drug companies refutes the claim. She states that the research and development costs for new and improved drugs are just a small part of drug company expenditure. She also states that their greatest costs, by far, are for marketing and administration (Brewer, 2007). Of the $200 billion revenues generated by selling drugs in U.S., about $20-24 billion is spent on R&D to develop so-called new drugs (Brewer, 2007).

The consumers choose these new drugs despite of more expensive than existing drugs. It is because these new drugs provide better results than before such as fewer side effects compared to the previous drugs. Hence, there are also some new drugs for disorders where no other option previously existed. Another driver for increased in drug consumption is the alternative use of existing drugs. For example, the medicines which were used for blood pressure are now also used for post heart attacked patient’s treatment. Additionally, Wellbutrin was used as an antidepressant and now used to reduce smoking. The availability of new drugs and increase of alternative uses of existing drugs are the big reasons of rapid increase in prescription drug consumption. General public wants these for their health benefits.