The Mystery of the High-Priced Pharmaceuticals

By John C. Nolan

My journey into the world of prescription drug costs began with an accounting of the medications taken by my father. While he takes three medications regularly, he was able to provide me with the pre-insurance cost of only one. Actimmune, which he takes to treat a lung condition, is prescribed as a thrice-weekly injection. Each injection costs $850, for an annual total of $132,600. His insurance covers most of the cost, leaving him responsible for a monthly co-pay of $40. I also totaled up the pre-insurance cost of my own medication (Prevacid), which costs $162.99 per month.

Prevacid is manufactured by TAP Pharmaceuticals, Inc. I contacted their Customer Service department and asked “Scott” for information regarding the determining of the cost of Prevacid. He responded that such information could be found on TAP’s website. I reviewed the website, but I found nothing regarding the cost of Prevacid.

I followed up my search with a call to TAP’s main telephone number. The operator transferred me to the Contracts and Pricing department, where I spoke to “Maria,” who informed that I needed to speak to someone in Medical Services. She transferred me, and I spoke to a Medical Services representative who told me that I needed to speak to one of TAP’s pharmacists.

“Ina,” a TAP pharmacist, explained that she did not have any information about pharmaceutical pricing, and that I should call either the “Insurance Hotline” or the “Reimbursement Hotline” for answers to my questions. Calls to both telephone numbers failed to yield any information about the cost of Prevacid.

Feeling frustrated, I decided to investigate the cost of Actimmune, which is manufactured by Intermune, Inc. My first telephone call was to the “Actimmune Access Hotline.” A Hotline representative explained that she did not have that information and that I would have to contact Intermune directly. I called Intermune’s headquarters and was transferred to the “Information Line,” where I spoke with “Karen.” “Karen” explained that she did not have the information I requested, and referred me back to the “Actimmune Access Hotline.” By this time, my head was spinning…

My experiences indicate that pharmaceutical companies do not want to discuss the cost of their products. Considering the high cost of pharmaceuticals, their withholding of information is both frustrating and suspicious. However, I worked for a pharmaceutical company (Wyeth, Inc.) for several years, so I can shed some light on this issue. One factor affecting cost is the significant failure rate within pharmaceutical research and development. Wyeth estimates that for every twelve drugs they attempt to develop, only two will end up being marketable. The high costs of those drugs that are marketed reflect the lack of return on investment in those that are not marketed.

A second factor is the twenty-year period of exclusivity granted to pharmaceutical companies for each drug, after which any company can market a generic version. While twenty years seems to be a long time, the period of exclusivity begins with the date of discovery of a compound and not with the initial marketing date. It is not uncommon for a drug to spend ten or more years in development. A long period of development results in a shorter period during which the company has exclusive rights to market the drug.

A final factor to consider is the issue of medical necessity. If the FDA determines a drug to be medically necessary, then pharmaceutical companies are required to manufacture it, regardless of how small the market might be. Rather than making the unprofitable but medically necessary drug prohibitively expensive, pharmaceutical companies will increase prices across the board to absorb their losses.

Of course, these factors do not account fully for the high cost of prescriptions drugs, but they do provide some insight into the reasons that costs are as high as they are. Nor do they excuse the “pass the buck” responses to questions about the high costs of their products. Perhaps, if pharmaceutical companies were more forthcoming with the reasons behind their pricing decisions, they would not be treated with such suspicion and skepticism by the public and by the media.