Tuesday, June 15, 2010

Why Are Prescription Drug Costs So High?

My response to an email complaining about drug markups:

The markups are considerable but necessary to operate in a market that is unreasonably regulated by the Federal bureaucrats, riddled with corrupt lobbying practices, and overwhelmed with trillions in unfunded liabilities that will tax us to oblivion.

For every dollar you spend on pharmaceuticals, about $0.20 goes to cover the FDA. Drug companies don't pay that. We do. If you developed a new cure for X, you would have to spend millions and many years to get the FDA to even look at it. See more here: http://www.fdareview.org/marketfailure.shtml

Also, lobbying Congress is not cheap. Drug companies spent over $250,000,000.00 on lobbying politicians last year. Pfizer alone has spent over $4,000,000.00 this year, and there is still six months to go! These costs are passed off to the consumer in the form of higher prices, aka the markups you see in the email. Someone has to pay for Pfizer to take pols on junkets. More details here: http://www.opensecrets.org/industries/indus.php?ind=h04

Finally remember that you also pay for these drugs via your taxes. The Bush Prescription Drug handout, which makes drugs for seniors "free," was supposed to "only" cost $400,000,000,000.00. The official projections suggest it is approaching $600,000,000,000.00. But the real cost is the unfunded liabilities that we are all on the hook for. There is right now, according to the Federal Reserve, over $19,000,000,000,000.00 (TRILLION!) in unfunded liabilities in "free" drugs. This is on top of $14 Trill in unfunded Social Security benefits, and almost $76 Trill in unfunded Medicare liabilities. You can see all of these figures, which come from the Federal Reserve, in real time at http://usdebtclock.org/ And by the way, these numbers do not yet factor in Obama's dictum to make health care "free." That will add to the pile considerably.

Regulatory costs, lobbying costs, and taxes to fund handouts all add up, and that is why we pay those markups. Economic law tells us: "Everything has a cost, and everything must be paid for."

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QE3 Is Here!

Move over QE2, QE3 is here! The markets are euphoric for now.