Prescription drug industry must be reformed

USA Today (Society for the Advancement of Education), March, 1994 by David Pryor

An increasing number of individuals have become victims of another drug crisis in America - the high cost of prescription medications. Several months ago, CBS aired a special segment on its nightly news describing the impact of rising drug prices on Americans of all ages. The segment also featured a report, developed by the Senate Special Committee on Aging as a public service, listing all the programs pharmaceutical manufacturers offer to make their prescription drugs available free of charge to patients who can not afford them.

Since the airing of that report, the committee has been deluged with more than 100,000 requests from individuals of all ages and from all across the country, asking for a copy. Extra phone lines had to be installed to accommodate the number of callers. In call after call, we heard the heartwrenching stories of people who described the astronomical cost of medications they must take and how they often wonder whether they will be able to afford their next refill. Months after the airing of that segment, the committee still receives hundreds of requests for this publication every week.

How have we reached this unacceptable state of affairs? The lion's share of the blame for Americans paying the highest medication prices in the industrialized world rests squarely on the shoulders of the drug manufacturers of this country.

In May, 1993, the General Accounting Office released a report that shocked even those who long have known that the pharmaceutical industry is the beneficiary of some of the most lavish tax breaks and tax credits given to any business in the US. Not only does it receive hundreds of millions of dollars in research and development tax credits, orphan drug tax credits, and marketing and advertising deductions, it also gets the largest share - about $2,000,000,000 year - of the mother of all tax credits, Internal Revenue Code Section 936.

Under this provision, the pharmaceutical industry is able to close up manufacturing operations in the U.S. and move them to Puerto Rico, transfer drug patents to the island, avoid paying millions of dollars in taxes on sales of these items, and then receive a credit of approximately $70,000 for each employee earning an average salary around $26,000. This tax credit, designed to stimulate the growth of jobs in Puerto Rico, has done much more to add to the drug industry's already bloated bottom line than to create jobs.

In fact, while the drug industry gets more than one-half of the Section 936 tax credits, it only employs 18% of all Section 936 workers. For some companies, the tax credit per employee hired is much higher than the $70,000 average. For example, Pfizer receives a tax credit of $156,000 for every employee it hires in Puerto Rico, 636% more than the salary it pays that worker. Merck gets 110,000 for every employee it hires, 450% more than the salary paid.

The ability of the elderly to afford their medications has concerned the American Association of Retired Persons for a number of years. In 1986, AARP issued a report that revealed that prescription medications are the highest out-of-pocket medical costs for three of four older Americans. In 1992, the association surveyed thousands of seniors to determine whether this situation had improved or deteriorated. The results showed an escalating crisis:

* About 8,000,000 Americans over age 45 indicated that they had to cut back on necessary items such as food or fuel to pay for their medications.

* Around 18,400,000 of those over 65 reported that they had trouble paying for their medications.

* Approximately 43% over 55 have absolutely no prescription drug coverage. That means 23,000,000 older Americans are left exposed to potential financial catastrophe from exorbitant medication bills.

* The problem is especially acute for men and women over 75. Only 40% of this population group has any drug insurance coverage, leaving 8,000,000 in this age bracket financially vulnerable.

* The Senate Special Committee on Aging completed its own report in August, 1992. It showed that, because of 12 years of triple-digit price inflation for medications, the ability of older Americans to afford their drugs has reached a crisis situation. Many are skipping doses or cutting their tablets in half to stretch their prescriptions.

The majority of older Americans do not have private or public health insurance prescription drugs. More than 64% of the medication costs are paid out of pocket. is the near-poor elderly, who do not have Medicaid, that have the highest out-of-pocket drug costs and the hardest time paying for their medications.

While Medicaid's prescription drug program can act as a safety valve in helping the poorest of the poor obtain their medications, only about 160% of older Americans - around 1,900,000 - are eligible to Medicaid. This means that 84% of poor or near-poor elderly - about 10,000,000 - do not qualify.

Although many manufacturers say they have special programs to make their medications available free of charge to patients who can not afford them, the report found that just a handful of the million of older Americans who could benefit from the programs actually, are taking advantage of them. The thousands of requests we have received over the past few months for information about these programs is a strong indication that patients and physicians are not aware of them.