Rep. Henry A. Waxman (D-Calif.) lashed out at the U.S. drug industry yesterday, charging that they are "gouging the American public" with "outrageous" price increases for prescription drugs.
Prescription drug prices, the fastest-growing component of U.S. medical costs, have risen at more than twice the rate of inflation since 1981, while the industry's profit rate was nearly triple the average for all manufacturers, said Waxman, chairman of the House subcommittee on health and the environment.
"Without adequate explanation, one can only conclude that what is going on in this industry is greed on a massive scale," Waxman said at an overflow hearing on drug price increases. "This is an industry that insists on increasing its profits at the expense of the sick, the poor and the elderly."
From January 1981 to June 1985, the CPI rose 23 percent while prescription drug prices shot up 56 percent, according to a congressional staff report. The study also said that during the past four years, pharmaceutical companies had an average after-tax profit rate of 12.7 percent, while the figure for all manufacturers was 4.2 percent.
Drug industry officials defended soaring pharmaceutical prices by stressing that, while they have risen in the last few years, drug prices climbed only slightly in previous years, resulting in an overall growth since 1967 that was below the inflation rate.
Drug company executives added that prices have climbed recently to cover accelerated investment in researching and developing new and better medications to protect Americans.
R&D investment by pharmaceutical firms will exceed $4 billion worldwide, about four times the amount spent 10 years ago, said Gerald J. Mossinghoff, president of the Pharmaceutical Manufacturers Association.
"The increased investment in pharmaceutical R&D has contributed to higher drug prices today, but certainly will lead to better, even more cost-effective medicines tomorrow," Mossinghoff said. "New drugs developed by our industry are among the principal reasons that the death rate for heart disease declined by 40 percent and the rate for strokes 55 percent over the past 20 years."
However, when Waxman asked for the percentage of consumer drug price increases that is allotted to research and development, Mossingoff and officials of three drug companies -- Hoffman-La Roche Inc., Merck & Co. Inc. and the American Home Products Corp. -- could not produce a figure.
"One should not be fooled into thinking that most of the dollars pouring in from these price increases are going into R&D," Waxman said. "For every additional dollar of sales, the industry is immediately setting aside 13 cents for profit and large amounts for marketing and advertising."
Senior citizens, who consume roughly 30 percent of prescribed drugs, are often the hardest hit by soaring prescription drug prices. About 80 percent of the elderly, most of whom are living on fixed incomes, must pay out-of-pocket since neither Medicare nor most private insurers reimburse for prescription drugs consumed outside of hospitals.
Anne Witoff, a 75-year-old Alexandria woman who testified yesterday, said that since January she has been charged more than $1,000 for prescription drugs that she has to take every day for her heart condition. "I have to take this medicine in order to survive," said Witoff, whose bills aren't covered by Medicare or her private insurer. "And every time I go to renew a prescription, there's a new price."