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May 31, 2005

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Read Marcia Angell's "The Truth About the Drug Companies: How They Deceive Us and What to Do About It", and "Critical Condition : How Health Care in America Became Big Business--and Bad Medicine" by Donald L. Barlett, James B. Steele.

Lots of other eye-openers about the Golden Rulers (you know, the ones with the gold who get to make up the rules.)

Thanks for the recommendations! I fear it will be very depressing.

Marketing expenses are not just a major cost factor to drug companies, it impacts virtually every industry. Even the USPS (a virtual monopoly) advertises heavily in print, on the radio & TV.

As for the drug companies, some of what they do is self preservation. With managed care came PBM's (pharmacy benefit managers) to negotiate lower payments for certain drugs (under a formulary) and shift the scripting away from new, higher priced meds in favor of lower cost alternatives. The Rx companies had to combat somehow and came up with the brilliant (from purely a marketing standpoint) of marketing direct to consumer.

Face it, those ads in LHJ, Redbook, etc worked. And who would have thought ED would be an open topic discussed by folks such as (NASCAR driver) Mark Martin in his "Viagra blue" racing car? Not being a NASCAR fan I prefer the Levitra babe, but that is another story . . .

Consumer direct marketing is a proven strategy for generating demand. It has had at least a partial impact in raising total insured claim payments for Rx from less than 10% to around 17%. Out of every $100 paid by a carrier for medical claims, $17 (sometimes more) is for meds.

But you can't lay the blame totally at the Rx companies feet. Much of the increased demand (and increased claims) is a direct result of low copay plans that encourage all participants (docs and pts) to ignore the REAL cost of medicine. It's just as easy for a doc to script a $200 med as it is a $40 med that may be just as effective when neither the doc nor the pt are paying the full cost of filling the script.

As I implied in my posts, those marketing expenses are vastly different as a percentage of expenses and a percentage of sales than any tech company, even consumer-oriented ones. That marketing comprises almost 3 times the expense that R&D does is the shocking part to me.


If the Rx companies were not getting results for their marketing expenses, they would not continue their spending patterns. Marketing, labor, rent . . . it all goes in the mix and must be accounted for in one way or another.

And stockholders must be appeased as the true owners of the companies. Pure speculation here, but if advertising dollars were cut in half resulting in lost revenues and profits, I doubt the owners of the companies would be pleased.

In contrast, doubling R&D just to please a few bean counters would have a negative impact on revenues, profits and stockholders willingness to fund the continued growth of the company.

Oh, you just love the straw man argument sometimes Bob. Who suggested "doubling R&D to please bean counters"?

My point is that the Rx companies justify their high prices because they are engaging in "years of research" to develop these healing remedies.

No, their high prices are more due to marketing.

And that just has a different ring to it, doesn't it? That's all.

[Not to mention that their profits, which benefit that relatively small number of shareholders are doing very very well indeed and have grown in double digits even when the rest of the market heading downward.]

Frankly, I consider your concern over accounting practices to be a non-issue in the overall cost of meds.

Yes, Rx costs as a percent of total claims has increased over the last 10 years or so, but that has little to do with the associated marketing costs. Much of that shift is caused by the move to treat more illness on an outpatient basis combined with over-utilization of some of the newer meds.

Add to that the aforementioned tendancy to treat Rx coverage under an insured health plan as a blank check. Both providers and patients alike illustrate a similar attitude toward the cost of meds.

I find it odd that, when a patient has no Rx coverage, or has a limited benefit plan, there is a shift in what med is prescribed. Docs who are aware there is a budget issue will hand out sample meds, will prescribe lower cost meds such as generics, or will encourage the use of OTC remedies.

No. No. No. I am not concerned about accounting.

What I am actually far more interested in, as a marketing person by trade, is how these companies position themselves, mostly for political and PR purposes.

Direct to Consumer Advertising is theoretically illegal in Canada. However Canadian consumers are inundated with DTA from American broadcasters. DTA has created top of mind awareness of advertised therapies to the point that patients are requesting them. General Practitioners then face decision of serving patient, giving them what they ask for, or not serving them by suggesting alternative therapies.

Create awareness and influence the key decision maker, DTA is pretty effective strategy. Bombard the public with a notion that there is solution to a problem. Supply the influencer with accurate but limited statistical data to support the claim. Only one strategic problem the product is flawed.

Thanks for the comment Bruce. I'm going to start following your blog. I like your focus on natural care amongst all the medical indsutry blogs I track :)

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