The production of sophisticated drugs requiring an extensive period of development, and the advances in high technology medicine contribute significantly to rising medical expenses.
The total value, at retail prices, of all pharmaceutical products sold in the world during 1980 was US$ 90 billion. The (then) German Federal Republic spent US$ 55 per person per year (up to $200 a year in 1994); Japan US$ 40; and the USA $36; in contrast, Nigeria spent US$ 1.50 per person per year; India US$ 1.00; and Sri Lanka less than US$ 1.00. Yet in many countries the drug budget still represents a sizeable proportion of the total health expenditure. In developed countries it ranges from 10% to 30% of the total cost of health care; but, paradoxically, in some developing countries the percentages are much larger, reaching up to 50% or more, particularly because of the sales promotion activities of manufacturers which create a demand greater than actual needs.Burroughs Wellcome was allowed to claim a use patent as well as 7-year exclusive rights for its AIDS drug AZT under the Orphan Drug Act. These are usually medicines that are not marketed because the afflictions they treat are too rare for drug companies to deal with. The company charged $10,000 a year for the AZT that can delay the onset of full-blown AIDS in people who carry the HIV-virus. Pressure from AIDS lobby has helped to force Wellcome to cut the price to $3,000 per patient per year. Monopolies able drug companies to charge high prices for medicines that must be taken for a lifetime.
In 2001, Cipla, an Indian company, offered to sell HIV drugs to South Africa and other governments for US $600 a year per patient, or about $400 below the price offered by most big drug companies that hold the patents. South Africa could take advantage of the offer only if it compelled the patent holders to license the drugs, for instance on the ground that in national emergencies, demand was not being met at fair prices. The multinationals argued that they need high prices in order to carry out their research, even though the prices put the remedies out of the reach of millions of people with HIV. But several companies did reduce their prices, some noting they would make no profit on the sales and others offering the discounted drugs to employers and nonprofit groups.
Pharmaceutical manufacturers take advantage of public ignorance with the cooperation of medical practicioners, to promote their brand-name products as having special value over the scientifically or generically named formulations. A combination of caffeine and analgesic may regularly sell for two or three times as much under a manufacturer's brand-name. Other brand-name pharmaceuticals have occasionally sold for four or five times the price of the generic version. Since drug quality is the subject of international standardization, there is no difference between generic and proprietaries. Doctors, however, continue to prescribe drugs under their proprietary names which leads consumers to purchase them without consideration of choice. The drug companies spend more money promoting to a single doctor than the average annual income of most families in developing countries. Labelling of generic drugs always indicates the manufacturer, so there is no loss of identity, contrary to what some pharmaceutical companies have maintained in their fight against making generic drugs available at lower costs.