Introduction to Pharmacoeconomics

Introduction to Pharmacoeconomics

Medications are the most widely used clinical intervention. The U.S. spends more on medications per capita than any other country but hasn’t been able to show better outcomes.

History of Major US Drug Policies

Introduction to Pharmacoeconomics

1906 – The market is flooded with patent medicines which were sold freely and did not need to state what they contained. Many of them had opiates or alcohols. The progressive movement called for disclosure of content and the FDA was created; medicines only needed labeling and did not to require it to be safe or effective.

1938 – Heavy toxicity in antibiotics led to the death of over 100 people, mostly children. This led to government regulation –  the FDA had to regulate that drugs weren’t toxic but did not test for effectiveness.

1961 – The FDA was now required to test that drug was effective to be sold.

2004 – Vioxx, an anti-inflammatory drug, was introduced by Merck & Co. doubled the risk of a stroke. The FDA was tasked with real time surveillance to detect side affects created with drugs using Veterans Administration and Medicare data.

The U.S. Drug Industry

It takes in revenues of nearly $350 billion a year. Only 12% of  total healthcare in the U.S. is spent on drugs. 80% of prescriptions are now generics, but the generics only account of 20% of the spend. It is the only country in which pricing is not negotiated. 10 companies have 1/3 of the market share.

Pharmaceutical companies spend more on research than the National Institute of Health spends on research. The companies spend only 15% of their revenue on R&D. The rest goes towards administration, marketing, profit etc. Most breakthrough drugs are now coming from small biotech firms.

Drug Approval & Post Marketing Safety Surveillance Policy

Clinical trial for effectiveness can be interpreted as lab success versus actual patient outcomes. The drug industry pays user fees to cover salaries for drug testing, so there are concerns on conflict of interest. Drugs can be approved for one use but used for another. The FDA doesn’t evaluate whether the drug is better than current therapies, it doesn’t look at cost effectiveness and doesn’t look at the kinds of patients who use it.


Drug costs are going up and drugs are being over prescribed. The prescribers don’t know what drugs cost and can’t differentiate between promotion and evidence. They also don’t know patients coverage. Sometimes facilities prescribe drugs because they get revenue from the markup. There is a tendency to over prescribe when there is no benefit or increased risk. The consequences for bad prescribing is rare and there is no incentive for good prescribing.

 Only New Zealand and the U.S. allow direct advertising to consumers.
The U.S. does not negotiate for drug prices.

The decision of drug choice is not made by the consumer and the consumer doesn’t experience drug cost (since it is partly covered by insurance). Often the information on cost and value of drugs is difficult to find.

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