Production problems resulted in two omissions in Sunday's Outlook section. A graphic on prescription drug costs for different age groups was missing a headline, which should have said the comparison was based on monthly expenditures. (Published 01/11/2000)

When he was 83, my father suffered repeated attacks of pneumonia, which at that age can be fatal. The doctors said his immune system wasn't making the right antibody to fight the infections and recommended he take a drug--intravenous serum immunoglobulin--that would supply a crucial missing protein.

Fine, he said--until he heard the price. It would cost at least $2,500 a month for several months, possibly for the rest of of his life. Forget it, he said.

Ability to pay wasn't the issue. My dad, a retired criminal trial lawyer and judge, had private health insurance in addition to Medicare. The issue was whether the drug was worth it, and my father thought it wasn't. He felt the marginal benefit it offered to someone his age did not justify the substantial cost, and it would not be right for anyone--not him, not his insurance company and not his fellow taxpayers--to pay.

As it happens, my dad's immune system eventually fixed the problem on its own and he got well; today he's 86. Even so, in my heart, I think he took an unnecessary risk. In my head, however, I applaud him for tackling a central health care question that society so far has avoided: How much are we willing to pay for the medical technology that we Americans are so adept at developing?

Advances in the pharmaceutical industry focus this question as never before. In a critical shift over the past few years, the rising cost of American health care has come to be driven overwhelmingly by the cost of drugs.

These days, the high end of the healing arts isn't necessarily multiple bypass surgery or a lengthy hospital stay. Increasingly it's an incredibly sophisticated array of medications that can keep people well--and off the operating table. These include not only such well-publicized drugs as the $15,000-a-year HIV treatment that helps stave off AIDS, but a multitude of drug regimens, costing hundreds of dollars a year apiece, that target a list of ailments that only gets longer as the average American gets older.

Last year, Americans spent well over $100 billion on prescription drugs, or about 10 cents of every dollar spent on health care. That proportion will rise: While health care expenditures in general are growing 7 to 10 percent a year, drug expenditures in particular are rising 17 to 20 percent. It's no wonder drugs have taken center stage in the debate about health care--the issue that continues to dominate the race between front-runners Al Gore and Bill Bradley for the Democratic presidential nomination. Even Canada, which has a national health plan and where many drugs identical to those available here are sold for much less, is grappling with how to give everyone access to drugs without breaking the national bank.

The reality is, technology is expensive, even if we eliminate excessive profits and excess use. At some point, society will have to come to grips with this fact, and either commit to ever-escalating costs or be willing to tell some Americans they cannot have the medicines they want.

Drugs are the most common out-of-pocket medical expense today, just as they were in 1992 when President Clinton used medication costs to illustrate the need for a national health plan. Clinton ignited another debate last summer by proposing prescription drug coverage for the 39 million beneficiaries of Medicare, which now pays only for drugs dispensed in hospitals or through HMOs.

Americans have long been of two minds about medical care. We complain that it costs too much, but we complain even louder--and sometimes file suit--when anyone tries to contain costs by limiting our choices or our access to care. "I've been trying to constrain health care spending for a long time, and what I've found is that Americans talk a good game. But when they get right down to it, they want what they want and they are not willing to restrict in any way their own use," says Stuart Altman, professor of health care policy at Brandeis University.

Altman oversaw the wage and price controls for the health care sector imposed during the Nixon administration and chaired a commission that advised Congress on controlling hospital spending under Medicare. Beginning in 1998, he served on a bipartisan panel that was to advise Congress and the White House on Medicare reform--but it disbanded last year after members couldn't agree, among other things, on whether Medicare should pay for outpatient prescription drugs. "The bad guys are us. We like all these new things, me included," he says, pointing out that 50 percent of the growth in spending for prescription drugs is for those that have come on the market since 1994.

What this means is that we're going to have to figure out which drugs we as a society--as consumers who buy health insurance, as taxpayers who support Medicare and Medicaid--are willing to pay for. And this focuses the questions we have long dodged in other areas of health care. Few would deny instant emergency treatment to somebody hit by a car. No one would say that a person who needs a liver transplant shouldn't get one--assuming a liver is available.

But when it comes to conditions that aren't so immediately dramatic or life-threatening, the choices are harder. Do we want to decide how much we are willing to spend to keep an 83-year-old man alive? How much to extend the life of a chronically ill person who won't make it another five years no matter what we do? What about drugs to alleviate everyday maladies such as allergies? Should so-called "lifestyle" drugs for baldness or mild anxiety be covered by tax dollars?

Perhaps we will decide that what we spend on health care in general and drugs in particular is money well spent--what, after all, is more valuable than health?--as long as we can feel reassured that products aren't overpriced. That is easier said than done, of course, as the effort to cut costs over the last two decades has shown.

The backdrop for this discussion is an extremely profitable pharmaceutical industry, which does a lot of lobbying to keep the government from limiting drug prices. Accused of making excessive profits, drug makers routinely cite the costs of the research and development that makes American medicine the most advanced in the world, and warn that any price constraints would curtail the advance of science. But several studies, including a report issued last month by the bipartisan Congressional Research Service, confirm that even after paying for R&D, the drug industry for decades has made more money, by every measure, than almost any other industry.

The pharmaceutical industry in recent years has earned about 18 cents after taxes for every dollar of revenue, or about three times the rate of the average U.S. company. The numbers strongly indicate that the industry could reduce prices considerably and remain comfortably profitable.

Sometimes the industry avoids the excess profit question by focusing on how drugs save money by keeping people out of the hospital, or by keeping them hard at work instead of sick in bed. For example, a recent pharmaceutical ad in this newspaper featured a drawing of a middle-aged woman, highlighting various parts of her body and the drugs that worked there.

"Migraine costs American employers about $8 million a year in missed workdays. New medicines are now reducing absences from work. . . . " reads one caption. "A new stroke medicine saves nearly $4 million for every 1,000 patients treated, by reducing the need for rehabilitation and nursing home care," reads another.

In our old mind-set, such arguments were enough to justify the prices drug companies charge. But when drug costs rise faster than hospitalization costs, what do we do? How do we draw the lines on what we can afford? The industry ad isn't incorrect, but it's somewhat misleading: It fails to say how much more could be saved if a drug that keeps a person out of the hospital were itself reduced in price.

Feeding the rising criticism of industry profits is the growing use of direct-to-consumer marketing by pharmaceutical companies. The trend fuels demand by consumers who can't really judge the merits of the drug but who nonetheless become angry if their HMO or managed-care provider won't pay for it. U.S. drug companies spend as much as 35 cents of every dollar of revenue on marketing, while in England the law won't allow drug companies to spend more than 12 percent of their revenue on marketing and advertising.

What can America do about rising drug expenditures? Price controls--which Clinton has hinted he might consider--are one option. Another would be to give individuals who have insurance more incentives to shop around for drugs as they would for any consumer item. Managed care providers already are moving to multitiered drug benefits, where they require, for example, a co-pay of $5 for a generic drug, $10 for a brand name that the HMO has purchased in bulk at a discount, and $30 for another brand-name version.

Employers, too, might give workers a defined amount of money to spend on health care rather than covering set services.

Even if we could agree on how to wring excess profit from the prescription drug industry, and critics and industry could agree on what fair prices would be, the cost of drugs--like the cost of all technology-based medicine--will continue to rise. That's true for reasons having nothing to do with profits: There are more people. We are living longer. Older people use more pills and procedures. And there are more and better drugs available for us to use. HMOs and other forms of managed care, even price controls, are merely stopgap measures that buy time and prolong the day of reckoning.

A fabulous new class of anti-inflammatory painkilling drugs known as COX-II inhibitors may cost a patient $300 to $400 a month. Cutting that by, say, 10 or 15 percent would still leave a patient with a monthly bill of $210 to $360. And while many younger people may not require many drugs at all, almost everyone who reaches a certain age will come to depend on pharmaceutical remedies.

"Drugs are only a flash point for a much larger question," says Sam Ho, vice president and corporate medical director of PacifiCare Health Systems in Santa Ana, Calif., the largest Medicare HMO in the country and one of the five largest HMOs in the country.

"Even if we eliminate all the waste factors," Ho says, which are often estimated to be 30 percent of health care expenditures, "we still have to ask the question of how much money we want to spend and how to spend it."

Perhaps our knowledge has exceeded our pocketbook, as Stephen W. Schondelmeyer, pharmacy professor at the University of Minnesota has said. Or perhaps we'll decide no amount of medical know-how is too much as long as we spend wisely.

Either way, getting rid of excess use and cost--a Herculean task--only clears the way for the much harder, underlying issue, the one my dad tried to address: How much is too much?

Kathleen Day, a reporter who has covered health care for The Post's Business section, has spent the past year studying prescription drug issues as a media fellow with the Kaiser Family Foundation.

U.S. Spending On Prescription Drugs

1970 $5.5 billion

1980 $12 billion

1990 $37.7 billion

1995 $61.1 billion

2000 (est) $110-$120 billion

Children and college students $10

Adults 18 to 65 $30

Adults over 65 $105

* out-of-pocket expenses and insurance money paid

SOURCES: U.S. Department of Health and Human Services; Sanford C. Bernstein & Co.; Milliman & Robertson Inc.