Perspectives on the pharmaceutical industry

Health Affairs

Volumn 20, Issue 5, 2001, Pages 136-149

  Reinhardt, Uwe E ^a  

^a PRINCETON UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ACCOUNTING; ARTICLE; COST; COST CONTROL; DRUG COST; DRUG INDUSTRY; ECONOMICS; FEE; HUMAN; PHARMACOECONOMICS; UNITED STATES;

ACCOUNTING; COST CONTROL; COST SHARING; DRUG COSTS; DRUG INDUSTRY; ECONOMICS, PHARMACEUTICAL; FEES, PHARMACEUTICAL; HUMANS; UNITED STATES;

EID: 0035460074     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.20.5.136     Document Type: Article

References (32)

1. A. Solomon, "A Cure for Poverty," New York Times Magazine, 6 May 2001.
2. If prescription drugs currently absorb about 15 percent of a health plan's premium (a relatively high estimate), and if spending on prescription drugs per insured in that plan rose by 20 percent (a high estimate as well), then only three percentage points of the total annual increase in that health plan's premium could be attributed to prescription drugs. With premiums again at double-digit levels, that leaves much of these increases to be explained by cost drivers other than prescription drugs.
3. S. Heffler et al., "Health Spending Growth Up in 1999: Faster Growth Expected in the Future," Health Affairs (Mar/Apr 2001):193-203.
4. R.W. Dubois et al., "Explaining Drug Spending Trends: Does Perception Match Reality?" Health Affairs (Mar/Apr 2000):231-239.
5. National Institute for Health Care Management Research and Educational Foundation, Factors Affecting the Growth of Prescription Drug Expenditures (Washington: NIHCM, 9 July 1999).
6. Heffler et al., "Health Spending Growth Up in 1999," Exhibit 7.
7. OECD Data for 1997, cited in Henry J. Kaiser Family Foundation, Prescription Drug Trends: A Chartbook (Menlo Park, Calif.: Kaiser Family Foundation, July 2000), Exhibit 2.6.
8. Heffler et al., "Health Spending Growth Up in 1999," Exhibit 1.
9. Kaiser Family Foundation, Prescription Drug Trends, Fig. 3.8.
10. Economic Report of the President, transmitted to Congress in February 1999, Tables B-2 and B-34.
11. Heffler et al., "Health Spending Growth Up in 1999"; and U.S. Department of Labor, Bureau of Labor Statistics, consumer spending data, 〈ftp://ftp.bls.gov/ pub/special.requests/ce/standard/y9399/multiyr.txt〉.
12. M.L. Berk and A.C. Monheit, "The Concentration of Health Care Expenditures, Revisited," Health Affairs (Mar/Apr 2001):9-18.
13. Ryan Soderstrom, senior director of marketing corporate communications, Express Scripts, personal communication, June 2001.
14. U.S. Department of Health and Human Services, Report to the President on Prescription Drug Coverage, Spending, Utilization, and Prices (Washington: DHHS, April 2000), chap. 2, Fig. 2-10.
15. E.P. Steinberg et al., "Beyond Survey Data: A Claims-Based Analysis of Drug Use and Spending by the Elderly," Health Affairs (Mar/Apr 2000): Exhibit 2.
16. DHHS, Report to the President, 9, 34, 36.
17. Deutsche Banc Alex. Brown, Pharmaceutical Industry Outlook Sobering Up on Drugs (New York: Alex. Brown, 11 October 1999), Fig. 40.
18. Economists argue that a firm's "accounting profits" systematically overstate the true "economic profits" earned by the firm. To obtain a firm's "economic profits," one must deduct from its "accounting profits" the amount needed to cover the shareholders' opportunity cost of investing their money in the firm, rather than in the next best alternative investment vehicle.
19. According to Leonard Yaffe of Banc of America Securities LLC, total R&D spending of the seven largest research-based pharmaceutical companies averaged 13.1 percent in 1998, SGA spending accounted for 35.5 percent, and after-tax profits, 20 percent. Personal communication, 9 March 2001.
20. In Germany, where since 1992 drug spending has been controlled with strict budget caps per physician and tough downward pressure on prices by the sickness funds, R&D spending is reported to have been 17.6 percent of total revenue in 1997, 16.4 percent in 1998, and 16.6 percent in 1999. See Verband Forschender Arzneimittelhersteller e.V., Statistics 2000: Die Arzneimittel in Deutschland (Annual Report of the Association of Research-Based Pharmaceutical Producers, 2000), 26.
21. For an analysis of this subject, see F.M. Scherer, "The Link between Gross Profits and Pharmaceutical R&D Spending," Health Affairs (Sep/Oct 2001): 216-220.
22. "Fortune 500: America's Largest Corporations," Top Performing Industries, 〈www.fortune.com〉 (11 July 2001).
23. See, for example, C.P. Stickney and R.L Weil, Financial Accounting, 9th ed. (Orlando, Fla.: Dryden Press, 2000), chap. 5.
24. Ibid.
25. In principle, interindustry comparisons of rates of returns to assets should be adjusted for the so-called business risk inherent in the firms' collection of assets. A consideration of this rather complex topic exceeds the space limit of this commentary. A brief discussion on this point, excised from an earlier draft, is available from the author upon request, 〈reinhard@princeton.edu〉.
26. Cited in Kaiser Family Foundation, Prescription Drug Trends, Fig. 3.2.
27. The social benefit of price discrimination is most clearly demonstrated by the sale of drugs to low-income developing countries (for example, countries in sub-Saharan Africa) at low incremental costs that contribute nothing to the recovery of the seller's fixed costs.
28. H.A. Huskamp et al., "The Medicare Prescription Drug Benefit: How Will the Game Be Played?" Health Affairs (Mar/Apr 2000):8-23.
29. P.M. Danzon, "Pharmaceutical Benefit Management: An Alternative Approach," Health Affairs (Mar/Apr 2000):24-25.
30. Ibid., 25.
31. U.E. Reinhardt, "Making Economic Evaluations More Respectable," Social Science and Medicine 45, no. 4 (1997):555-562.
32. This idea is not novel. In the early 1990s the Jackson Hole Group proposed a similar, quasi-governmental body for all technology assessment in health care. See P.M. Ellwood, A.C. Enthoven, and L. Etheredge, "The Jackson Hole Initiative for a Twenty-first Century American Health Care System," Health Economics 1, no. 3 (1992):149-168.