Why Drugs Cost So Much: High Stakes: We Spend $125 Billion a Year on Drugs, and Prescription Costs Are a Hot Political Button. Staying Healthy, However, Isn't Cheap. the Real Story Behind the Sticker Shock

Newsweek, September 25, 2000 | Go to article overview

Why Drugs Cost So Much: High Stakes: We Spend $125 Billion a Year on Drugs, and Prescription Costs Are a Hot Political Button. Staying Healthy, However, Isn't Cheap. the Real Story Behind the Sticker Shock


For years, Robert and Sarah Bergeon have quietly struggled to pay for the medicines they need. The South Milwaukee, Wis., couple spend about $6,500 annually, nearly a third of their $21,000 income, on the seven different drugs 71-year-old Sarah takes for heart disease and diabetes and the ones Robert takes for gout and blood-pressure problems. They are covered by Medicare, but the 35-year-old program has no prescription-drug benefit. "We both worked hard all of our lives and never asked for help from anyone," says Robert, 72, a retired printer who works part time bagging groceries to help pay for their medicines and sometimes skips his drugs to make sure Sarah gets hers. "It's stressful now and it's scary. I don't want to see anybody else go through this."

The politicians hear him, and the 13 million other seniors who have no prescription-drug coverage. From the presidential race to the battle for Congress, candidates are bashing the high prices, and many consumers are clearly angry. But the most interesting--and largely untold--story is how the nation got here: why do our drugs cost so much? The answer sheds light not only on the factors that lead to drugstore sticker shock but also on the complex history of the pharmaceutical industry, one of the most innovative and profitable sectors in American business.

People in the United States enjoy the best health care in the world, but it comes at a high price, and drugs are the fastest-growing piece of the country's medical bill. Between 1995 and 1999, drug expenditures in the United States more than doubled, from $65 billion to $125 billion. With millions of boomers pushing 60 and new drugs coming on the market, the nation's drug tab is headed for the stratosphere. One government study predicts prescription-drug spending in the United States will reach $243 billion by 2008. There are three main reasons for the explosion in spending:

We take more drugs than ever. Drugmakers are pumping out totally new treatments for a breathtaking variety of illnesses.

There's constant--and expensive--innovation. The industry introduces improved versions of existing drugs, and new often means more expensive. When it comes to their own health, people want Starbucks, not Maxwell House, and medical decisions aren't like other economic choices: Americans like to have the best, and will pay for it if they possibly can.

Prices are going up. Drugmakers are able to charge more for medicines, many of which people cannot or will not live without, thanks partly to a unique competitive environment in which the companies get multiple patents and patent extensions that protect them from rivals.

The Bush and Gore campaigns are staking out their ground on the issue, offering competing prescription-drug plans (sidebars: the candidates' NEWSWEEK essays on the topic). The Senate, scrambling to get in on the action, plans to debate and vote on drug coverage for low-income seniors in the next few weeks. With the economy in its eighth year of a record expansion and with projected trillion-dollar surpluses, voters and politicians alike seem committed to redirecting some of the nation's wealth to help elderly Americans pay for their medicine. But the costs are not just a problem for Medicare seniors with no prescription benefit. Whatever coverage Medicare seniors end up with, there will still be an additional 50 million or so Americans with no drug coverage, and millions more with limited coverage.

Bush and Gore both want to protect seniors from the rising toll. Bush's plan relies on the private sector by offering the elderly a 25 percent subsidy on premiums so they can buy prescription-drug coverage from insurance companies. Gore wants to expand the role of the federal government by adding a prescription-drug benefit to Medicare. The Bush camp dismisses the Gore plan as a bureaucratic nightmare (the governor's rats ad, with its alleged subliminal message, was an attack on the vice president's prescription proposal), while Gore backers say the Bush plan leaves millions of middle-class seniors with no coverage. …

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