must also cover expenses for unsuccessful candidates) for each successful drug. The wide gap between these estimates has been challenged by numerous groups, for example, the pharmaceutical industry's trade group, Pharmaceutical Research and Manufacturers of America (PhRMA). PhRMA's mission is to defend the drug industry's image and profits. Consumers, fighting unchecked profiteering to reduce the burden of high drug prices on the poor and elderly, challenge the industry's profits and ethics with press releases and lobbying. To counter PhRMA's justification of high profits, consumer organizations routinely underplay the amount and significance of R&D performed by the pharmaceutical industry. Note that in general estimating drug development costs is not easy as a result of a variety of factors, including the fact that corporations have traditionally jealously guarded research expenses, trade secrets, and technology to mask their activity from competitors. In the past, two basic approaches have been used to gauge the outlay needed to bring a drug from laboratory to pharmacy. An estimate can be derived by analyzing several companies' drug development projects individually. A drawback to this method is the reliance on company-supplied figures for research that may not reflect actual expenses. The price of research may also be estimated by using industrywide aggregate figures for R&D, then apportioning costs among the number of drugs actually approved during the study period.
In recent years, soaring drug prices have also been of concern to numerous states (e.g., Massachusetts and Michigan) as well as a variety of consumer organizations. These entities and organizations contend that patient care is being squeezed by high drug prices and runaway health care costs. Unable to sustain ballooning Medicaid drug budgets, some states have told pharmaceutical makers either to lower prices or to face banishment of their products to a list of medications that will require third-party approval before they can be prescribed. Prior approval is a steep hurdle that effectively means that another company's drug gets Medicaid's lucrative business; prior approval can create hurdles for patients as well. Particularly vulnerable are the elderly, the disabled, and people with complicated treatment needs, including those with HIV.
The magnitude of the drug price spiral crisis is illustrated best by tracking recent data on spend ing on prescription drugs and on Medicaid expenditures on drugs. Shrinking state and federal budgets that have put Medicaid programs under tremendous pressure to hold down costs also contribute to the magnitude of the crisis. Many states have passed laws designed to contain state or consumer drug expenditures, and a number of experiments in tighter administration of public drug spending are under way. These responses are important to watch because trends in Medicaid often soon spread to other public health plans such as ADAP, the states' AIDS Drug Assistance Programs. Reining in mounting drug expenditures is likely to remain a significant challenge for large health care payers in the coming years. Efforts to cut prices and/or cut utilization are bound to increase, as will consumer resistance to perceived or real efforts to deny medication and, undoubtedly, industry's efforts to fight back.
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