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Are we paying too much for prescriptions?

Prescription pills slide into a bottle.

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KAI RYSSDAL: The federal government says total health care spending in the United States comes to about $2 trillion a year.Plus or minus 16 percent of GDP, Or about $6,600 for each of the 300 million of us who live here. But did you ever stop to think about whether we're getting our money's worth, and where all that money goes?

That's a question we've been reporting on for the past couple of months.And today, we come to prescription drugs. Americans pay the highest prices in the world for prescription medications. So it stands to reason that they could be a main line-item of that $2 trillion bill.

From the Marketplace Health Desk at WGBH, Helen Palmer has the answer.


HELEN PALMER: Yes, prescription drug costs certainly add up to a significant number of dollars.

CHRIS MILNE: Somewhere on the order of $250 billion in the United States, upwards of $400 billion worldwide. So that's a lot of prescription drug sales.

That's Chris Milne of the Tufts Center for the Study of Drug Development. Milne says prescription drug costs are only 10 percent of the American health care pie. But the U.S. accounts for 60 percent of global drug profits — which certainly sounds unfair. So why do Americans get to pay top dollar?

Analyst Mark Ravera of Strategic Pharma.

MARK RAVERA: The main reason is that it's an unregulated market. There's no pricing approval required in the U.S., as there is in many of the European countries where drugs have to be approved for regulatory issues and also for price before they can come to the market.

Essentially, says Ravera, pharmaceutical companies charge what they reckon the market will bear.

RAVERA: The companies do put a lot of research and effort into determining what the price should be in the U.S based on quality of life improvements, life-saving ability of the drug, comparative drug pricing, looking at the competition.

Of course, pharmaceutical companies argue that they give away millions of dollars worth of drugs to those who can't pay. And the prices they charge in the U.S. are essential to recoup their research costs. The most expensive therapies of all come from the biotech companies.Jim Greenwood's head of the industry organization Bio.

JIM GREENWOOD: It costs about a billion — some people would say $1.2 billion, on average, to take a drug from discovery in the lab to commercialization. It's a very, very risky business.

Less than 1 in 300 biotech prospects actually succeed. And if the companies don't get cash from those that do, there'll be no research money for the next-generation therapies.

But other experts say it's a myth that pharma companies are investing massively in research.

Jerry Avorn analysed the industry in the book "Powerful Medicines."

JERRY AVORN: About 14 cents on the dollar actually gets plowed back into real research. Another 30 percent goes for marketing and promotion and administration, which is double what goes into research and development. And another 20 percent goes back to the shareholders.

Drugs like sleep aid Lunesta, at about $4 a pill.

LUNESTA AD: Ask your doctor how to get seven nights of Lunesta absloutely free and see if it's the sleep aid you've been looking for. Non-narcotic Lunesta can help you get a full night's sleep.

Critics complain that drug companies medicalize normal conditions — like sleeplessness — then persuade us that an expensive pill is the cure.

But Gail Shearer of Consumers Union says Americans also pay more than they need to for life-saving heart drugs.

GAIL SHEARER: For example, if someone needs to lower their cholesterol, they could switch from a very highly-advertised brand-name drug to a generic that could cost $1 a day, instead of $4 a day.

Shearer says if seniors made that switch, it would save Medicare $8 billion a year — just on that one drug class. Consumer's Union's launched a website to help consumers find the most cost-effective drugs.

But costs can be high even for patients who use cheap generics.

Take Leo Murphy, a 70-year-old retired truck driver.

LEO MURPHY: I get the ibuprofen for lower back pain. I got Advia . . . Advantia, rather. Another one is a water pill.

Even with Medicare drug insurance, Murphy's 20 percent co-pay means he ends up with a hefty bill for the seven pills he takes each day.

MURPHY: Where my prescription drugs exceeded over $1,000 for the year. I'm on like, roughly $14,000 a year. Do you take your prescriptions, or do you go hungry?

Consumer advocates say it doesn't need to come to that. If we intelligently use the drugs we have, take the older generic if possible, and are skeptical of marketing hype, we could save billions off our bloated drug bill.

In Boston, I'm Helen Palmer for Marketplace.

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