This paper deals with the question of obstacles, barriers, and pitfalls that may influence the rising cost of prescription drugs and the effects on Medicare. It primarily draws on two arguments: the first by Johnson (2009) that the battle for market share between name brands and their generic counterparts has the potential to extinguish innovation. The second, by Walsh (1999) argues that the large pharmaceutical companies have no price restrictions levied against them, and can structure prices however they like. Finally, the corollary is drawn between these two phenomena and how Medicare recipients get caught in the middle.
Affordable Prescription Drugs
In order for pharmaceutical companies to lower prices they must take a totally different view to how profits are made and how future research and development can occur. Currently they take the approach that they have a twenty year patent in which to research, develop, market, and profit from a new drug. After this time generic manufacturers can legally sell their products and compete for customers. The companies that develop these drugs need to cover their costs and continue developing new drugs. Their profit schemes have worked so far, but times have changed.
Big name pharmaceutical companies may be forced to change their pricing policies for one simple reason—competition of generics from developing nations, such as India and China, that deliver effective, cheap drugs. Reverse engineering of name brands and marketing of these generic drugs is projected to make these new players majorly influential in the drug market in years to come. According to Johnson (2009) “… inclusion of noninfectious diseases, such as cancer, diabetes and heart disease, into this little- or no-profit scenario could undermine innovation for chronic diseases,” (Drug Industry’s Doomsday Scenario section, para. 3).
The ugly truth is that the expensive process of researching and developing new drugs may force giant pharmaceutical companies to either delay research and development or take the risky avenue of trying to sell cheaper drugs for long term profits, neither appeals to them. With patents on existing drugs running out, generic brands are well positioned to seize as much market share as possible. It is only a matter of time before these emerging giants can acquire a profit majority and then break into the research and development arena as well.
Demand for a product usually raises prices, and the market for medications is no different. According to Walsh (1999) “…the pricing of newly approved prescription drugs is not regulated at all in the United States” (New Drugs, New Profits section, para. 3). Demand for more drugs to treat a wide range of illnesses coupled with the pharmaceutical industry’s ability to set their own prices creates a large gap in drug availability and affordability. This results in a lot of Medicare beneficiaries dealing with increasing prices that cause them to dig deeper into their own pockets. Logically many of them lessen doses or skip them altogether to cut costs.
Pharmaceutical companies would argue that people would not have these drugs without enough profit to endlessly fuel research for new drugs. To help insure this these large companies have lessened the impact of generic drugs, wherever possible, by influencing legislation that delays their market availability or simply raises generic drug prices to discourage competition. The question of right and wrong does not seem to factor into the equation. It appears that, for the time being, new drugs will be expensive, their generic counterparts cheaper, and a small percentage of the market will have to shell out large sums of money to pay for the new drugs they so desperately desire.
The pitfalls of high drug costs have surrounded the pharmaceutical industry. Public sentiment for people who have trouble affording medication is on the rise, and factors such as cheaper generics are waiting in the wings to swoop in and scoop up profits. The question for the future of these huge companies is not whether their policies will change, but how they will change, and how they will continue to invent and market new drugs.
Johnson, Toni. (2009, December 16). Generic Drugs: The Other Drug War. Retrieved from http://www.cfr.org/publication/18055/generic_drugs.html#p5
Walsh, Andrew. (1999, January). Addressing the Rising Cost of Prescription Drugs. Retrieved from http://www.trincoll.edu/depts/tcn/Research_Reports/51.