Why More Americans Are Filling Prescriptions Online

Section Guide

In addition to this page on the background to the online discount drug controversy, this section also includes pages on:

• Buying Discount Drugs Online
  • (including Canadian discount pharmacies and Mexican discount pharmacies)
• FDA Personal Importation Policy
• About Generic Medications

Mental Health Advocacy and the Pharmaceutical Industry

It's difficult to take any interest in mental health advocacy without being drawn into the controversy surrounding the pricing and patent protection of brand name medications (e.g., Effexor, Prozac, Serzone, etc.). Katharine Greider's recent book The Big Fix: How the Pharmaceutical Industry Rips Off American Consumers (Greider 2003) in particular has created tremendous public stir over its account of systematic exploitation by pharmaceutical giants -- exploitation that is particularly acute in the United States, a vast market without pricing regulations.

By comparison, on average, Italians pay 53 percent of the U.S. cost for a brand-name drug, the French pay 55 percent, Swedes 64 percent, Germans 65 percent and Swiss and United Kingdom residents 69 percent. (Some international drug price comparisons are available from the web site of U.S. Congressman Rep. Bernard Sanders (I-VT).)

As Greider reports, Canadians pay around 62 percent of the U.S. price -- and this is why many of the increasing numbers of Americans who turn to cheap online suppliers of medications choose pharmacies based in Canada.

So the drug companies love the United States. The sections below describe why in quantitative terms and then explore how the situation has come to be as it is.

Pharmaceutical Profits

The single most profitable industry in the United States, the nine largest pharmaceutical companies generated profits of $30.6 billion in 2001. Over the past decade, drug company profits represented an 18.5% return on revenue, some 5.6 times greater that the 3.3% median return of Fortune 500 companies. And according to Fortune magazine, during 2001 -- a year in which the Fortune 500 reported the worst financial performance in the magazine's 48 year history (apart from 1992, which was complicated by a change of accounting rules) -- the drug industry ranked first on all three of Fortune's profitability measures, including return on revenues, return on assets, and return on equity.

And while it is commonly believed that these large profits are necessary to fund the ongoing development of new drugs, this is only partly true. For example, out of $100 spent on a prescription for Lipitor, a popular and widely prescribed drug for the treatment of high cholesterol, the dollars break down in the following way:

• $35 goes for marketing, advertising and administration
• $26 goes for 'other', including manufacturing, executive pay, labour costs, etc.
• $24 is net profit
• $15 goes for the research and development

Note that the 24% figure is net profit, not gross profit: i.e., this is the pure profit left over after research and development has been funded!

How Does it Happen?

How is it that the pharmaceutical industry manages so consistently, year after year, to generate these vast profits? As a popular AFL-CIO article called 'What Big Drug Companies Aren't Telling You', summarizing Greider's book, indicates, some of the methods include:

• 'Tweak' original drug formulas to create a 'new' version with a bigger price tag.
• Charge individuals the steepest price, big purchasers the smallest.
• Set prices higher in huge unregulated U.S. market than in nations with price controls.
• Claim new uses for old drugs and extend patents and monopolies to keep inexpensive generic versions off the market.
• Spend the most of any U.S. industry on lobbying to keep government at bay.
• Saturate the media with slick ads, create new brands and generate new demand.

It's the tweaking and patent extension which are perhaps the most remarkable, and it all comes down to clever use of patent law. Patents typically grant 20 years of protection from generic competition to the company which first patents a drug. That is, the patent holder enjoys exclusive rights to manufacture and sell that drug. In some ways, this seems a justified return on the large investment required to create a new drug in the first place -- a process which all too often fails to lead to a successful medicine at all.

But to circumvent this time limit on the protection from competition from generics, the drug industry 'evergreens', or reformulates a product just before the original patent protection expires -- perhaps introducing a timed-release version or an extended-release version, combining it with another existing drug, targeting it at a new illness, or sometimes even filing for a patent on an inert ingredient used in the formulation. Such relatively minor changes can extent patent protection for a further three years. It would appear that these changes to create 'new' drugs need not even be clinically significant!

The lobbying effort is pretty impressive, too. Not only does the pharmaceutical industry sponsor a vast array of "in-house educational opportunities" (part education, part marketing spiel) and marketing incentives for doctors, but the industry employs over 600 lobbyists -- more than any other industry and more than one for every single Senator and Representative in Congress -- whose job it is to urge elected representatives in the direction of legislation that favours the industry. According to Greider, in the 1999-2000 election cycle, "drug companies spent more money to influence politicians than did insurance companies, telephone companies, electric companies, commercial banks, oil and gas producers, automakers, tobacco companies, food processors and manufacturers -- more, in short, than any other industry".

What Can You Do About It? Buying Medications Online

So, what can the individual consumer do about it? The most straightforward answer is that they can vote with their pocketbooks -- by buying medications more cheaply from online discount suppliers! A separate page discusses Buying Discount Drugs Online, including recommendations for discount pharmacies in Canada and in Mexico.

Many people are now also using PPOs to help secure lower prices for prescription medications and for other aspects of their medical care.