Scandals involving price increases for prescription drugs have become increasingly common in the past five years. In 2015 there was widespread outrage when the drug Daraprim, a drug used to treat malaria and parasitic infections overnight, went from $13.50 a tablet to $750 a tablet. Similarly two whistleblowers exposed the practices of Questcor Pharmaceuticals, now Mallinckrodt, to increase the sale of the drug H.P. Acthar Gel. The drug, used to treat rare infant disorders, has increased from $40 a vial in 2000 to nearly $39,000 in 2019.These price hikes although huge tell us little about the average cost of pharmaceuticals for Americans, since Drarprim and H.P. Acthar Gel are not used to treat common ailments. In this blog post we shall explore the different data techniques used to explore the cost of pharmaceuticals for all Americans and their relative strengths and weaknesses.
The different techniques
For this post I used OECD, the Organisation for Economic Co-operation and Development, an intergovernmental organization committed to promoting policies that will improve the economic and social well-being of people around the world. It is important to note that this data includes expenditures on prescription medication and self-medication or over-the-counter products, i.e. products that do not require a prescription from a licensed medical practitioner. If you were conducting a research project where you solely wanted to focus on the cost of prescription drugs, then you would need to take this into account in your research.
Percentages and inflation
From the data on the OECD website I created the line graph below (for more information on line graphs see the previous blog post), which plots the percentage of U.S. health spending on pharmaceuticals over time. One question that students often ask when confronted with percentages rather than a whole number is why? Why use a percentage, would it not be easier to see the trends in U.S. pharmaceutical spending if I plotted just the amount of money the U.S. spent on pharmaceuticals?
The problem with using this method to examine the cost of drugs is inflation. Over time the average price of goods will increase thus reducing the purchasing power of a particular currency. Therefore, we would expect to see pharmaceutical spending increase over time because inflation would cause the cost of goods (such as drugs) to increase. Using the amount of money to measure pharmaceutical spending therefore can lead to possible misrepresentation because we would not be taking inflation into account. When we measure the percentage of US health care spent on pharmaceuticals, we can better compare data across multiples years since the line graph is comparing the proportion of money spent on pharmaceuticals compared to the total money spent on health, effectively avoiding the issue of inflation.
Percentages and GDP
An alternative way to determine if the U.S. is spending more on pharmaceutical products is to chart the spending on pharmaceuticals as a percentage of GDP. GDP or Gross Domestic Product is a broad measure of a nation’s wealth and economic activity. If a nation’s wealth were to increase, then we would expect to see an increase in spending on drugs and other kinds of goods because the more money a country has, the more money it will spend. But provided that the proportion spending in relation to GDP was similar to previous years we would see no growth on the line graph. Thus by comparing spending to GDP we can gain a more accurate insight into the trends on U.S. spending on pharmaceuticals.
A third way to examine the cost of U.S. pharmaceutical spending is on a per capita basis. Per capita looks complicated because it’s Latin, but it is actually very easy to understand. It simply means “per person” i.e. the graph below charts the average amount of money that every person in the U.S. spent on pharmaceutical products. This method gives us a clear idea of how much people spend on prescription and non-prescription drugs, but doesn’t factor in larger economic factors such as inflation or GDP.
One final way to examine U.S. pharmaceutical spending would be to compare it against other countries. A number that might seem large initially may turn out to be the same as other countries of similar wealth or population. For this blog post I also charted the per capita spending on pharmaceutical products in the United Kingdom.
The eagle eyed amongst you may have noticed that there is a gap in the data between 1997 and 2013 leading to a misrepresentative steep increase on the line graph. When working with data you may come across data sets which are lacking values for a given year or series of years. In those instances, you must decide how best to get around this problem and most accurately represent the trends your data is showing. For this project I decided to increase the per capita spending by the same multiple every year in order to allow for a clear comparison with the U.S.
So what do these graphs tell us about the cost and spending habits of the U.S. on pharmaceuticals? It is particularly telling that all the different measures we have considered (per capita, percentage of health spending on pharmaceuticals, percentage of GDP), have all demonstrated that the cost of spending on pharmaceuticals has gone up substantially. Additionally, we can see that this trend is not the norm among countries of similar wealth and demographics as the U.S. since the 2016 per capita spending on pharmaceuticals in the UK is $400 compared $1,200 in the U.S. The data suggests that Americans are spending a disproportionately large amount of money on drugs compared to other countries and that Americans have seen rises in the price of drugs far above inflation.