Drug firms' profits come under fire Hill study cites $2 billion gain

February 26, 1993|By Los Angeles Times

WASHINGTON -- The nation's pharmaceutical companies are reaping profits far in excess of those realized by other industries, even after deducting the substantial costs of developing new drugs, according to a congressional report released yesterday.

Drug manufacturers collectively reaped returns $2 billion above the profit incentive necessary to raise investment money for research and development, according to the study by the Office of Technology Assessment.

The study calls into question industry claims that the high prices charged for many prescription drugs are necessary to offset the significant risks and prohibitive costs of pharmaceutical research and development.

Industry officials disputed the findings, saying they are based on outdated data and fail to recognize the changing nature of the pharmaceutical market.

Nevertheless, the report appears likely to bolster arguments of those who want to increase government regulation of the health care industry.

President Clinton has assailed the industry for raising prices far beyond the rate of inflation, and sources say the administration is considering the possibility of imposing at least temporary price controls as part of the health care reform program it will unveil later this year.

The report concludes that free market forces alone are not sufficient to contain the rapid escalation of drug prices, for several reasons.

Many prescription drugs are paid by health insurance plans, which means that individual consumers have little reason to shop for lower prices, the report said.

Doctors also do not frequently consider price when prescribing drugs, and pharmacists are prohibited by law from suggesting alternative drugs, the study noted.

The congressional study found that the pharmaceutical industry's marketing and advertising costs average about $10 billion per year, $2 billion more than the industry spends annually to develop new drugs.

Pharmaceutical manufacturers realized yearly profits from 1976 to 1987 that "were about 2 to 3 percentage points higher than those of firms in other industries, after differences in risk across industries were taken into account," the report said.

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