Survey says: DTC advertising, R&D driving up drug costs

April 1, 2002

pharmacy benefits trends in US



Survey says: DTC advertising, R&D driving up drug costs

Direct-to-consumer (DTC) advertising and expenses associated with developing new drugs are driving escalating prescription costs, according to the 2002 Arxcel Pharmaceutical Benefits Research Survey. Arxcel is a prescription benefits management consultant based in Buffalo.

The survey, conducted during December 2001 and January 2002, utilized telephone research interviews. Seventy-five surveys were completed from interviews with corporate executives belonging to health plans, self-insured employers, and third-party administrators.

The survey also revealed the following:

Six out of 10 respondents (61.3%) chose DTC advertising as the one cause that has played the largest role in escalating drug costs, 20% cited the expense of developing new drugs, 10.7% of respondents named the aging population, and 4% each blamed changes in use of pharmaceutical product and inflation as the cause.

Who is responsible for high pharmaceutical costs? A whopping 80% singled out pharmaceutical companies, 16% put the onus on consumers, and 2% pointed a finger at the government. No one listed managed care organizations or physicians as culprits.

When it comes to possible solutions for slowing pharmacy cost escalation, slightly more than a quarter of respondents gave as a possible solution "providing incentives through tiered copayment levels." One-fifth named educating doctors about the cost and proper use of pharmaceuticals; 17% said government involvement; just under 15% said increasing the patient's cost share; 11% cited patient education about cost-effective use of medicines; 6.7% indicated identifying and measuring medical savings through proper use; and 5.3% said limiting coverage for high-cost medications. No respondents selected establishing incentives for physicians or limiting access to certain pharmacies.

Respondents were asked to rate each of these potential solutions as to their individual viability as a solution for slowing down the rate of price increases on a scale of 1 to 4. A rating of 1 meant the solution would have high potential to make an impact, while a rating of 4 meant the solution would have very little or no impact.

Here are some of the solutions and how respondents rated them:

• Increasing the patient's cost share. Sixty-nine percent of the respondents gave this solution a rating of 1 or 2.

• Providing incentives through tiered copayment levels. This solution was rated a 1 or 2 by 73% of the respondents.

• Limiting access to certain pharmacies. This answer was rated a 3 or 4 by 72%.

• Educating doctors on the cost of pharmaceuticals and their proper use. This solution was rated a 1 or 2 by 53% of respondents and a 3 or 4 by 46%.

• Establishing financial incentives for physicians. Forty-five percent gave this solution a 1 or 2, and 55% gave it a 3 or 4.

• The majority of respondents said they are opposed to government involvement in providing Rx drug benefits; 72% rated this solution a 3 or 4.

What do respondents think is a realistic annual rate of increase in the overall cost of a pharmacy benefit program? Overall, 83% chose less than the 15% annual increase that the Centers for Medicare and Medicaid Services (CMS) estimates.

Respondents were asked to choose a price point at which the per-member per-month pharmacy benefit cost would be too high to provide coverage. About one in five respondents (22.7%) selected $46 to $55 per member per month; a total of 38.6% chose responses of $45 or below per month.

When asked what would be the ideal percentage of the cost of an Rx a member should contribute, almost half (47%) of the respondents chose the 21% to 30% level. The next highest category selected was the 16% to 20% level chosen by 28%.

The majority of respondents (63%) do not think the government should become involved in the management of rising prescription costs. Reasons cited were: the government makes the situation worse; the government is not qualified to intervene; it needs to let free market correct itself.

Among the 37% that favor government involvement, the top reasons given were the following: there is a need to regulate pharmaceutical companies and the industry; it's the only way to control costs; it can keep costs down.

These respondents believe that the following federal government initiatives would help solve the problem of rising Rx drug costs: price controls, regulation of pharmaceutical industry; elimination of DTC advertising; shortening patent time frames and loosening Food & Drug Administration regulations on bringing new drugs to market; and educating doctors and consumers.

Sandra Levy

For more information on the survey, go to .


Sandra Levy. Survey says: DTC advertising, R&D driving up drug costs.

Drug Topics

Apr. 1, 2002;146:56.