The question of why medicines cost so much is one posed frequently, especially by consumers in an election year. The responses from the pharmaceutical companies often focus on the high cost associated with research and development of the drugs.
It is true that the drug development process is expensive, time-consuming and risky. Many have compared the process of developing a single successful drug to finding the proverbial needle in a haystack. That's because of every 5000 compounds tested, on average, only five are tested in clinical trials and only one of those is approved by the Food and Drug Administration (FDA) for patient use. Revenues from successful medicines must cover the costs of what the oil industry calls the "dry holes."

Studies show that it can take nearly 15 years and cost nearly $500 million to bring a new drug to patients. But the process is getting faster. According to the FDA, the time span for getting a drug to market has been cut from up to 17 years to fewer than 10 years, with the average being eight-and-one-half years. Most of that time is spent testing the drug to make sure it is safe. As this process becomes shorter and more efficient, and the research and development costs are contained, the consumer ultimately benefits.

In the past two years, 100 new medicines have been approved in the U.S. Currently, an estimated 50,000 pharmaceutical company scientists are researching more than 1,000 new medicines for cancer, heart disease, AIDS, Alzheimer's and many other diseases. Also, as the human genome is mapped, the number of potential new targets for pharmaceutical intervention will increase as much as 20-fold, thereby increasing the hope for effective new treatments.

The price of medicines is not based on the cost of its ingredients. Like other products that result from creativity and research, the price is determined by the value of the knowledge represented. In the case of pharmaceuticals, that value is the knowledge that prevents and cures disease, prevents surgery, reduces hospitalizations, and relieves patient suffering. How do you put a price on improving the quality of life?
Manufacturers, distributors and retailers establish drug prices. The emergence of powerful buyers through managed care organizations and health plans has created price competition based on value. This benefits all people in the United States who have prescription drug coverage. These plans are able to negotiate rebates and discounts on almost all medicines.

But what about those who do not have insurance to cover prescription drugs? Unfortunately, those are the people who pay the highest retail price for medicines. This group includes senior citizens, although two-thirds of seniors already have prescription drug coverage through a variety of sources, including employment retirement benefits. However, we need to improve access to prescription drug coverage and the benefits that come only with this coverage, which includes the most competitive pricing. Including prescription drug coverage in the Medicare program would be a good start. In this election year, you will be hearing much more about this issue from the presidential candidates.

In the last analysis, the cost of medicine is based on the lengthy research and development process, the FDA approval process, as well as the price based on value. However, costs are positively affected by competition and negotiated discounts. The cost of medicines reflects their enormous value to patients and to society. If we focus too much on cost cutting, we may lose sight of their value and jeopardize the development of new pharmaceuticals in the future.

Rebecca J. Kraft, Ed.D. is a health care consultant and President of the Kraft Consulting Group, a training and management consulting firm. Phone: 913.782.0567 or
e-mail: rebkraft@aol.com