Healthcare and Drugs in America
It is no secret that the cost of American healthcare is on the rise. Already the nation is spending about $1.65 trillion a year on healthcare. That represents 15 percent of gross domestic product, the total output of goods and services. It consumes one-fourth of the federal budget, more than defense. (Allan Rubin) This is due to the factors of expensive technology, less stringent HMO cost management, and more specifically to this paper, rapidly rising drug costs. Surveying nearly 3,000 employers, Mercer Human Resource Consulting finds that their health-benefit costs rose 10.1 percent this year, while inflation hovered around 2 percent.
And as the research and development of these drugs continue to outpace inflation, most Americans will continue to pay for this trend.
How so? There are two main reasons for this phenomenon. First of all the U.S has highly favorable patent laws toward these drug companies, prohibiting normal market competition for long periods of time. These monopolies allow manufacturers to charge several hundred percent above (world) market prices. (Dean Baker and Noriko Chatani) Some pharmaceutical companies have even been accused of delaying generic drug patents through litigation, even bribery in order to keep their drug prices high. It encourages a behavior of rent seekers. And these tactics prove highly lucrative. For example the drug Cardizem, used for blood pressure and hypertension reduction, had $700 million in sales in the 11 months the generic drug was kept off the market.
This also causes generic brands to rise in cost. According to IMS Health, pharmaceutical information companies, the price for generic drugs are increasing almost twice as fast as prices for brand-name drugs. This is also due to its lack of competition. Generic drug companies are consolidating due to the higher prices being charged by the generic drug companies for the 6-month period of time in which a particular generic drug company has marketing exclusivity for the name brand that is just coming off patent. And just like the predecessor the generic drug company that has this 6-month exclusivity period will charge a higher price for the drug during this period of time. (Allan Rubin)
Secondly the U.S is also the only drug market that that does not have government price controls. And due to this fact U.S. consumers typically pay at least 30 to 50 percent more for prescription medicines than consumers in other countries. (David R. Francis) By comparison, Canada spends about 10 percent of GDP on a universal, government-run healthcare system. Further, Canadians live a bit longer on average than Americans. That suggests lower costs haven't damaged the health of Canadians and more importantly suggests that the answer to lower healthcare might just lie beyond U.S borders.
However the pharmaceutical industry disagrees. They claim that the difference in world prices reflects the cost the companies need to...