D.C. Area Consumers Pay More for Prescription Drugs While Pharmaceutical Profits Soar: An Investigation Into Prescription Drug Price Gouging In The D.C. Metropolitan Area

10/24/2000

Executive Summary

Part One: D.C. Metro Area Drug Price Survey Finds Uninsured Consumers Pay Twice as Much as Most Favored Customers

Thousands of D.C. Area consumers without prescription drug coverage face price gouging by pharmaceutical manufacturers. A price survey of 33 pharmacies in the D.C. Area, conducted by the national consumer groups Public Citizen, U.S. PIRG and the D.C. chapter of the Gray Panthers shows that consumers who lack prescription drug coverage are being charged retail prices that are nearly double the prices prescription drug makers charge their most favored customers.

Public Citizen, U.S. PIRG and the Gray Panthers surveyed the prices of nine of the most widely prescribed drugs for older adults at randomly selected pharmacies in the District and in Maryland and Virginia inside the I-495 Beltway. Three of the nine are also the most widely prescribed drugs to all population groups. The retail price was compared to the "best" price charged to federal agencies, such as the Department of Veterans Affairs. According to the U.S. General Accounting Office, this is the lowest price pharmaceutical manufacturers charge their most favored customers.

The survey found that the prices charged to local uninsured consumers were nearly double - 97% more - the most favored customer price. If the Medicare program were to get the same price discount as the Veterans Department receives, the price of drugs to uninsured Medicare beneficiaries could be cut in half based on the survey results. Such a price cut would make Medicare drug coverage much more affordable for taxpayers and substantially reduce any out-of-pocket costs for beneficiaries.

For the top nine drugs used by seniors to treat a variety of illnesses, those in the D.C. area paid between 74% and 221% more than drug companies' most favored customers.

D.C. Area Prescription Drug Price Survey Results

(*Includes $4 markup to reflect reasonable pharmacy dispensing fee.)

Part Two: Medicare Beneficiaries' Existing Drug Coverage, Drug Industry Profits and Legislative Options

Over 70 million Americans, one in four, have no or inadequate prescription drug coverage. Of those, 13 million senior citizens and people with disabilities who are Medicare beneficiaries have no outpatient drug coverage. Millions of other older adults have inadequate or insecure drug coverage with high deductibles and co-payments and low annual caps. Moreover, Medicare HMOs and employer plans are reducing drug coverage or raising costs for retirees.

In the D.C. metropolitan area at least 127,000 seniors have no prescription drug coverage and thousands of other consumers have no or inadequate coverage. Meanwhile, prescription drug costs are increasing 15-20% a year, breaking the budgets of many families or forcing people in need to go without their medications. Instead of offering most favored prices to Medicare beneficiaries -- because of their huge collective buying power -- as the drug companies do to veterans through the Veterans Department, the companies price gouge uninsured seniors and people with disabilities by charging them their highest retail prices.

The pharmaceutical industry profits handsomely from price gouging. For decades, brand name prescription drug makers have consistently been among the most profitable industries in America. In 1999, the drug industry ranked first among all industries in rates of return on equity, assets, and revenues. Despite these high profits, the prescription drug industry pays 40% less in federal taxes than other major industries. Moreover, CEOs of the top twelve pharmaceutical companies last year averaged $18 million in annual compensation, including stock options, and now hold more than $840 million in unexercised stock options.

The drug industry claims that high U.S. prescription drug prices are necessary to fund research and development. But European countries, which sell the same drugs for a fraction of the U.S. price because their governments negotiate fair prices with prescription drug makers, have produced 60% more new drugs than the United States since 1975. In fact, R&D is a lower priority than profits for drug companies. For instance, in 1999, the top twelve firms put nearly 50% more revenue into profits than put into R&D.

Congress has been debating how to best provide seniors with prescription drug coverage and whether to rein in skyrocketing drug prices. President Clinton and House Minority Leader Gephardt (D-MO) have proposed expanding Medicare to include comprehensive prescription drug coverage, much like the program now provides hospital and physician coverage. However, Rep. Bill Thomas (R-CA) and House Republican leaders passed a bill along party lines that would rely less on Medicare and more on the private insurance industry to offer drug insurance plans and encourage beneficiaries to join HMOs and other managed care plans to get coverage.

While the Clinton-Gephardt plan is far superior to the Thomas proposal, in that it relies on Medicare and not the private sector to provide coverage to seniors, both plans fail to adequately rein in soaring drug costs. To be truly cost-effective for both seniors and taxpayers, a Medicare prescription drug benefit must also use the bargaining power of Medicare to negotiate significantly lower drug prices. Such a proposal is embodied in the "Prescription Drug Fairness for Seniors Act" (H.R. 664/S. 731), which has 163 House and Senate cosponsors.