Drug Prices Are Reasonable.(Statistical Data Included)

Drug Prices Are Reasonable Ronald Bailey, "Damn the Pusher Man," in Reason (April 2001), 3415 South Sepulveda Boulevard #400, Los Angeles, California 90034.

Science correspondent Bailey suggests that most criticisms of big pharmaceutical companies are unfounded. Among them:

* Drug prices are too high. Spending on prescription drugs is increasing rapidly, with increases between 1997 and 1999 of between 14 and 19 percent. But that's because we're consuming more drugs, not because average unit costs are rising--between 1993 and 1999 inflation rose 18 percent, and drug prices rose 18.1 percent. According to the Bureau of Labor Statistics, the average American spends 1 percent of his income on prescription drugs--about the amount spent on tobacco and alcohol.

As drug prices rise, hospital stays decrease. Columbia University economist Frank Lichtenberg calculates that for every additional dollar people spend on prescriptions, they save an average of $3.65 in hospital bills. In 1991, New Hampshire capped the amount seniors could be reimbursed under Medicaid for prescriptions, but ended the cap after the state spent 20 times as much on hospital care as it would have spent on drugs.

* Drug companies are too profitable. By conventional accounting practices, drug companies have profit margins of up to 20 percent. But drug companies can write off their huge research and development budgets. ...