Drug Industry Double Dips Taxpayers

For older Americans and others, the rising price of prescription drugs is public issue No. 1.

With Congress debating ways to give Medicare recipients a break, many Americans will be surprised to learn they're being double billed for drugs they need. CBS News Correspondent Diana Olick reports Americans already pay a premium for prescription drugs, but for years now, they've been paying for some drugs twice.

That's the perspective of Public Citizen's Dr. Sidney Wolfe. "The drug industry is really gouging and getting a good deal by getting some of their research funds paid for by the federal government and then charging as much as they possibly can," he says.

The National Institutes of Health use your tax dollars to pay for more than one third of all U.S. medical research. For example, the NIH developed the breast cancer drug tamoxifin, but now the pharmaceutical industry charges a premium: about $241 per treatment. Canadians pay about $34. Still the drug industry claims the U.S. cost is justified.

Pharmaceutical industry spokesman Alan Holmer says, "On average it costs $500 million to get a single medicine to market."

But an industry insider, former pharmaceutical company executive, Dr. Nelson Levy, who would not go on camera, told CBS News, "While the companies spend a lot of money on research and development, it is not the major cost of their high drug prices; they spend more money on marketing and sales than they do on research and development."

And this year some of the top pharmaceutical companies are showing record profits: Pfizer up 15 percent, Johnson & Johnson up 13 percent, and Eli Lilly up 9 percent.

So why can't the drug companies give taxpayers a break on federally funded drugs?

Well, there was an NIH rule called "reasonable pricing," instituted under the Reagan administration, but thrown out five years ago because the drug companies didn't like it and threatened to stop working with the agency.

"The National Institutes of Health specifically rejected this five years ago for a very sound reason, which was that it would harm biomedical research," Homer says.

Former NIH head Dr. Bernadine Healy, who is a consultant for CBS News, fought for reasonable pricing.

"The pharmaceutical industry is doing a good job in protecting their interest. Why is the government not protecting the government's interest and the public interest?" Healy asks.

This month, Rep. Bernard Sanders, a Vermont Independent, sponsored a bill to make reasonable pricing law, and it passed.

"It's not rocket science," Sanders says. "It's having the guts to tell the pharmaceutical industry, 'You're not going to rip the people off.'">

But it did not pass the Senate, so for now the government continues to give away valuable research, and the drug companies continue to profit.