October 24, 2004


HIGH PRICES: How to think about prescription drugs. (MALCOLM GLADWELL, 2004-10-18, The New Yorker)

The problem with the way we think about prescription drugs begins with a basic misunderstanding about drug prices. The editorial board of the Times has pronounced them much too high; Marcia Angell calls them “intolerable.” The perception that the drug industry is profiteering at the expense of the American consumer has given pharmaceutical firms a reputation on a par with that of cigarette manufacturers.

In fact, the complaint is only half true. The “intolerable” prices that Angell writes about are confined to the brand-name sector of the American drug marketplace. As the economists Patricia Danzon and Michael Furukawa recently pointed out in the journal Health Affairs, drugs still under patent protection are anywhere from twenty-five to forty per cent more expensive in the United States than in places like England, France, and Canada. Generic drugs are another story. Because there are so many companies in the United States that step in to make drugs once their patents expire, and because the price competition among those firms is so fierce, generic drugs here are among the cheapest in the world. And, according to Danzon and Furukawa’s analysis, when prescription drugs are converted to over-the-counter status no other country even comes close to having prices as low as the United States.

It is not accurate to say, then, that the United States has higher prescription-drug prices than other countries. It is accurate to say only that the United States has a different pricing system from that of other countries. Americans pay more for drugs when they first come out and less as the drugs get older, while the rest of the world pays less in the beginning and more later. Whose pricing system is cheaper? It depends. If you are taking Mevacor for your cholesterol, the 20-mg. pill is two-twenty-five in America and less than two dollars if you buy it in Canada. But generic Mevacor (lovastatin) is about a dollar a pill in Canada and as low as sixty-five cents a pill in the United States. Of course, not every drug comes in a generic version. But so many important drugs have gone off-patent recently that the rate of increase in drug spending in the United States has fallen sharply for the past four years. And so many other drugs are going to go off-patent in the next few years—including the top-selling drug in this country, the anti-cholesterol medication Lipitor—that many Americans who now pay more for their drugs than their counterparts in other Western countries could soon be paying less.

The second misconception about prices has to do with their importance in driving up over-all drug costs. In one three-year period in the mid-nineteen-nineties, for example, the amount of money spent in the United States on asthma medication increased by almost a hundred per cent. But none of that was due to an increase in the price of asthma drugs. It was largely the result of an increase in the prevalence of usage—that is, in the number of people who were given a diagnosis of the disease and who then bought drugs to treat it. Part of that hundred-per-cent increase was also the result of a change in what’s known as the intensity of drug use: in the mid-nineties, doctors were becoming far more aggressive in their attempts to prevent asthma attacks, and in those three years people with asthma went from filling about nine prescriptions a year to filling fourteen prescriptions a year. Last year, asthma costs jumped again, by twenty-six per cent, and price inflation played a role. But, once again, the big factor was prevalence. And this time around there was also a change in what’s called the therapeutic mix; in an attempt to fight the disease more effectively, physicians are switching many of their patients to newer, better, and more expensive drugs, like Merck’s Singulair.

Asthma is not an isolated case. In 2003, the amount that Americans spent on cholesterol-lowering drugs rose 23.8 per cent, and similar increases are forecast for the next few years. Why the increase? Well, the baby boomers are aging, and so are at greater risk for heart attacks. The incidence of obesity is increasing. In 2002, the National Institutes of Health lowered the thresholds for when people with high cholesterol ought to start taking drugs like Lipitor and Mevacor. In combination, those factors are having an enormous impact on both the prevalence and the intensity of cholesterol treatment. All told, prescription-drug spending in the United States rose 9.1 per cent last year. Only three of those percentage points were due to price increases, however, which means that inflation was about the same in the drug sector as it was in the over-all economy. Angell’s book and almost every other account of the prescription-drug crisis take it for granted that cost increases are evidence of how we’ve been cheated by the industry. In fact, drug expenditures are rising rapidly in the United States not so much because we’re being charged more for prescription drugs but because more people are taking more medications in more expensive combinations. It’s not price that matters; it’s volume.

This is a critical fact, and it ought to fundamentally change the way we think about the problem of drug costs. Last year, hospital expenditures rose by the same amount as drug expenditures—nine per cent. Yet almost all of that (eight percentage points) was due to inflation. That’s something to be upset about: when it comes to hospital services, we’re spending more and getting less. When it comes to drugs, though, we’re spending more and we’re getting more, and that makes the question of how we ought to respond to rising drug costs a little more ambiguous.

drugs have become consumer goods--largely discretionary rather than medically necessary--but in a system that doesn't have normal consumer pressures. A transformation to a Health Savings Account system will, in the first instance, encourage folks to question whether they really need the junk and, in the second, provide incentive for them shop for cheaper options.

Posted by Orrin Judd at October 24, 2004 10:56 AM

This is a touchy subject for me. I take cholesterol medicine, but have no way of judging what the impact would be if I stopped. The only evidence that I have to go by is the number reported to me by the doctor after she takes some of my blood. Since I'm in good condition, there's not much more for me to do. But since I have a family history of heart disease, I'm told that I'm at risk. I'd prefer not to take it at all, but quitting would make my family nervous.

As you can see, I go back and forth on it.

Posted by: Brandon at October 24, 2004 1:57 PM

If Orrin really believes that, he might as well become a Christian Scientist.

Asthma drugs, to take one group almost at random, are pretty expensive (very expensive if you have episodes bad enough to require hospitalization). Try treating that with diet

Posted by: Harry Eagar at October 24, 2004 2:00 PM

When I grew up, my Mother continually told me to stay away from drugs. Now all I hear from her generation is 'We want our drugs.'

Posted by: Fred Jacobsen (San Fran) at October 24, 2004 2:19 PM

While it's true that some conditions require medication, and diet plays little to no role, there are many conditions that are prevalent, but respond quite readily to proper lifestyle.

However, although I occasionally speak to people about the benefits of moderate, daily exercise, eating very few calories, and avoiding sugar like rat poison, with the hope that individuals will benefit, I have no illusion whatsoever that most Americans will follow such a regimen.
When living like 19th century Americans, or modern day Amish, is combined with modern medicine, the odds of good health for nine decades or so are good.

However, it requires a commitment that most aren't willing to make, for theoretical benefits decades away.

Posted by: Michael Herdegen at October 24, 2004 4:12 PM


As so often, you cite proves my case. Asthma is now linked to rising obesity rates.

Posted by: oj at October 24, 2004 5:45 PM

Except for all those skinny asthmatics.

Like the sister of friend of mine.

She died in the early 80's thanks to asthma. Thanks to modern asthma medication, she would still be alive had she the wits to be born 10 year later.

Posted by: Jeff Guinn at October 24, 2004 8:34 PM

Yes, there are real asthmatics.

Posted by: oj at October 24, 2004 8:53 PM

That's who I was talking about.

Posted by: Harry Eagar at October 25, 2004 12:30 AM

Ah, well, that's not what the post was about was it? The point is that many people don't need the drugs they take which drives the pharmaceutical market.

Posted by: oj at October 25, 2004 7:47 AM

Oh, the market is broke, eh?

How can that be?

Posted by: Harry Eagar at October 25, 2004 2:18 PM

The market isn't broken, the customers are. They demand, and the market delivers, things that they don't need, or for problems that they could more effectively solve in other ways.

It's a problem beyond the scope of markets, unless it's the market for self-help books or therapists.

Posted by: Michael Herdegen at October 26, 2004 7:36 AM