Pharmaceutical and health insurance industries: do no harm or bottom line?

Drug Makers
Pharmaceutical organizations and their lobbying organization, PhaRMA, claim that our high drug prices are due to research and development. A careful reading of research and of the recent book The Truth About the Drug Companies by Marcia Angell raise questions that can be summarized with this chart:

This research published in early 2008 was done by two scholars who studied many reports by pharmaceuticals. Promotion includes advertising, drug pushers to physicians and others, and lobbying among many practices.

Pharmaceuticals spend much of their R&D funds developing "me-too" drugs that are almost copies of competitors' top selling profitable drugs. Small changes allow the maker to patent the drug then charge high prices for the length of the patent. They spend their R&D to almost duplicate a competitor's money making cash cow, rather than seek for completely new drugs to treat diseases for which there is no known treatment. One chapter in Angell's book probes into this practice.

Schering-Plaugh's blockbuster allergy drug, Claritin, brought in a third of their revenues before its patent expired in 2002. The company has not been able to switch Claritin users to Clarinex that is almost identical and still under patent, reports Angell in her book.

Most pharmaceuticals are trans-national; some are American and some are European that often have labs in each other's continents. Much of the original R&D in the U.S. is funded by the NIH and done in campus labs. Is the R&D driven by profit or by medical and patient needs?

America is the only nation that does not control the cost of drugs. The following chart shows how much more Americans pay than citizens of other countries:

The bars are sequenced red-white-blue for the three years covered. The bars show the excess prices charged in the U.S. over the prices in the other countries listed (the top bars show our prices were 89% higher than Italy's in 2000). Prices paid by American Medicaid and VA are lower because they negotiate lower prices, which Congress prohibited Medicare from doing in the drug benefit know as Part D that was written by drug lobbyists. Compare Part D and its donut hole to Australian Medicare's PBS drug benefit.

Insurance industry
The following chart compares the total coverage and how much was administrative overhead of Medicare and Medicaid government programs and the largest private for-profit insurance company, UnitedHealth Group.

Overall for-profit insurance companies average about 1/5 of their funds spent on administrative overhead. Paul Krugman, the noted economist, claims the staff that delay, question, and deny claims is the largest group in many health insurance firms. The CEO of UnitedHealth Group is paid $124 million, while the Executive Director of Medicare and Medicaid is paid $143,250. The administrative cost of Medicare and Medicaid is 5.2% while for-profits average 17.6% admin. UnitedHealth Group is considered a desirable, high profit investment.

Which do we want, “do no harm,” or “the bottom line” as the basic motivation, mission, and purpose for both drug makers and insurance firms?