Friday, February 13, 2015

Explaining the High Cost of Prescription Drugs in America

One part of the Affordable Care Act that gets almost no attention from the media is the "Physician Payment Sunshine Act" or section 6002 of the ACA, the text of which can be found here.  By law, starting in 2014, a publicly available Open Payments Data website, managed by the Centers for Medicare and Medicaid Services (CMS), will display information about payments and other "transfers of value" made from manufacturers to individual doctors and teaching hospitals as stated here:

"Sometimes, doctors and hospitals have financial relationships with health care manufacturing companies. These relationships can include money for research activities, gifts, speaking fees, meals, or travel. The Social Security Act requires CMS to collect information from applicable manufacturers and group purchasing organizations (GPOs) in order to report information about their financial relationships with physicians and hospitals. Open Payments is the federally run program that collects the information about these financial relationships and makes it available to you."

The act requires manufacturers of drugs, medical devices and biologicals that participate in federal health care programs to report payments to physicians as noted above when cumulative payments have a value of over $100 or items that have a value of less than $10 which must be included if the aggregate value is $100 or more.  The first data was made available to the public in late September 2014 and, as of December 19, 2014, the total value of "financial relationships" between the health care system and the health care manufacturing sector totalled $3.7 billion with data published on 366,000 physicians, 900 teaching hospitals and 1228 applicable manufacturers and group purchasing organizations.

You might ask yourself, "why is this so important?".  Let's look at a bit of background.  According to the IMS Institute for Healthcare Informatics, this is what spending on medicines int he United States looked like in 2013:

American consumers spent a total of $232 billion or branded drugs and $97 billion on branded and unbranded generics.  This is an increase of 3.2 percent over the previous year.  

Here is a graphic showing which Americans, by age, use the most prescription drugs and how many prescriptions they have:

Overall, American per capita consumption of pharmaceuticals rose by 1.7 percent on a year-over-year basis to 12.2 prescriptions per capita.  Seniors over the age of 65 who make up 13.7 percent of the total U.S. population use 31.3 percent of all prescriptions with between 27.3 and 29.1 prescriptions per capita.

A 2010 study by Joshua Weiss at The George Washington University Law School examined the marketing of both pharmaceuticals and medical devices in the United States during 2009.  In that year, Americans spent around $300 billion on prescription drugs and a further $200 billion on medical devices.  While he notes that estimates vary, it appears that the pharmaceutical and medical device industries spent around $30 billion in 2009 on "marketing efforts", spending an average of over $20,000 per doctor per year on marketing that includes gifts that are often of the type branded with pharmaceutical company logos, meals, travel, consultancy fees and continuing medical education programs.  A 2007 study by Dr. Eric Campbell showed that 94 percent of physicians in the United States have received some form of benefit or payment from the drug and device industries.  Most of these involved receiving food in the workplace (83 percent), or receiving drug samples (78 percent).  As well, 35 percent reported receiving reimbursement for costs associated with professional meetings or continuing education and 28 percent received payment for consulting, giving lectures or enrolling patients in trials as shown on this table:

It has been observed that physicians who meet with marketers prescribe more drugs overall and tend to more frequently prescribe branded medicines rather than cheaper generic alternatives. 

While this may seem like harmless "fun and games", ultimately taxpayers and private insurance must pay the bill for pharmaceutical industry-induced overspending.

Let's go back to the Open Payments database.  By going to this page and typing in the name of a physician, teaching hospital or pharmaceutical/medical company, you can retrieve a full and detailed listing of payments received and made.  Here is a screen capture showing you part of the retrieval for three types of payments made by Pfizer Inc.:

Please note that there are a total of 11,159 pages of payments made by Pfizer to physicians, a total of 49 pages of general payments made to teaching hospitals and a total of 178 pages of research payments made to teaching hospitals.  In total, Pfizer made 112,073 total general transactions totalling $21,207,374.91 in general payments along with 1771 total research transactions totalling $18,286,714.72 from August to December 2013 (the first reporting cycle of the new law).

It is interesting to note that the Americal Medical Association even provides its physicians with "customizable talking points" that they can use to respond to inquiries about the Sunshine Act, the first page of which is shown here:

Given the economic power of the for-profit medical system in the United States and the long-running battle against the Affordable Care Act, it is interesting to see that at least one part of the legislation is providing American healthcare consumers with information that is enlightening.  Given that "Big Pharma" spent $227,808,563 on lobbying in 2014 (which puts them in first place among all 121 industries) as shown on this graphic: will be interesting to see how long the "Physician Payment Sunshine Act" remains intact.

So, the next time you pick up that way overpriced prescription, please keep in mind that America's pharmaceutical industry has millions and millions of dollars to spend on lobbying and physician "marketing efforts" instead of research and development, an "investment" that partially explains why the United States has the world's most costly health care.


  1. Not really touched on by this post, but the overmedicating of people is also a problem. Anytime I or my wife have an issue the Dr. attempt to provide some type of prescription and then there are the "tests" to rule out certain things. The whole industry is rotten due to being for profit.

  2. The next time I "pick up that way overpriced prescription", I will be reminded that some of my money is going to doctors who treat patients, and not all is staying with the pharmaceutical industry. That's a good thing, not a bad thing.

    1. Unless that Doctor happens to be providing you with an overpriced pharmaceutical for which he/she received a "benefit" rather than a cheaper alternative for which he/she did not. Then it's to your disadvantage.