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Rx Marketing Costs

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Getting behind a drug rep in the Starbucks line is no one’s favorite.  In fact, I actual feel sorry for those guys that likely go crazy trying to keep the drink orders straight.  (The new mobile app must be a godsend for them!)  At least we can take comfort in the fact that some of the pharmaceutical industry marketing funds are being spent in our community.  Maybe we are even sharing in our stock portfolios if we were smart enough to buy Starbuck’s stock years ago.

Individual Redding doctors received as much as $58,000 in 2014 from pharmaceutical companies according to the following website:  https://projects.propublica.org/docdollars/.  Some received very nominal amounts but there were several in the tens of thousands of dollars.   This is a far cry from the number one recipient in San Diego, SUJATA NARAYAN. The bulk of fees paid to this recipient were speaking fees and were paid to a foundation that is apparently named for him and his spouse.

In 2014, $3.53 Billion was paid to 681,432 doctors by 1630 companies.  In CA the 2014 total was $806 million.  The information is being made public under a provision of the 2010 Affordable Care Act. (ACA) The law mandates disclosure of payments to doctors, dentists, chiropractors, podiatrists and optometrists for things like promotional speaking, consulting, meals, educational items and research.

Do these payments influence a physician’s prescribing habits?  Or is it just the reverse?  Does a physician promote the product because s/he has seen such great results that s/he wants to be sure to get the word out to the public?  Or is it a simple business decision, like any other?  All things being equal, most business will promote the line that gives the best incentives.

I simply do not have the answers to those questions.  But, these are interesting statistics and certainly speak to the pharmaceutical company contention that drugs are so expensive due to the research and development costs.  I will accept that in part this is true.  But not to the extent that they allege.

American spent about $329.2 billion on Rx in 2013 according to a Washington Post article published in Feb 2015.  John Oliver reminded us that this works out to $1000 for every single person in the US.

According to one 2013 report prepared by the healthcare research firm GlobaData, total sales and marketing costs far outweigh research and development costs for most big pharma companies.  For example Novarits spent $14.6 billion on marketing vs. 9.9 on research, while Pfizer spent $11.4 billion and $6.6 respectively.

Please note that these numbers are Billions with a capital B!

I am certainly tired of erectile dysfunction ads but I was surprised to find the bulk of the advertising dollars are actually directed to physicians, rather than the public.  So even if those silly ads were all withdrawn, the marketing costs would exceed R&D costs.

California recent passed legislation to limit the insured members share of cost on prescription drugs.  No later than 2017 the patient’s costs per prescription will be limited to $500.  This will help those with crazy high priced drugs.  But it will do nothing to reduce the cost to insurance companies who simply pass on that cost to the rest of us with the next rate increase.

Remember insurance companies must pay out 85 cents of every dollar in direct health claims.  The other 15 cents is used for administration, marketing and risk sharing expense. This rule was also provide by the ACA.

I likely sound like a broken record, but the fact is that if we don’t do something to control the underlying costs of care in this nation, it matters not which health plan is in effect; ACA, Medicare for all or some new yet to be announced program. These costs are the drivers.

We must decide as a nation.  Is any form of health care a basic service that must be provided and regulated accordingly?  Or is this something we want to leave to the markets to sort out? The ACA may not be perfect, but it has brought to light and actually addressed some of these issues.  Now we have to see if our legislators have the back bone to do even more about it.  The health insurance & health care financing market is highly regulated. The health care delivery market is also subject to regulation.  But be very clear, they are distinctly different and while interrelated, they are not the same.

Margaret R. Beck

Margaret Beck CLU, ChFC, CEBS started her insurance practice in Redding in 1978. She founded Affiliated Benefit Services.

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