Here we have a Washington Post story highlighting a recent "scandal": Martin Shkreli, CEO of Turing Pharmaceuticals, raised the price of an off-patent AIDS drug by over 5,000 percent. The Post reports:
The major pharmaceutical and biotech industry groups have portrayed Shkreli's actions as totally repugnant and the work of just one company, acting alone, with a flippant young chief executive who doesn't reflect the broader values, practices, or trends of other companies.
The article nicely demonstrates this is total bunk:
For example, tetracycline, an antibiotic discovered in 1948, cost 5 cents for a 500 milligram capsule back in November of 2013...Nearly two years later, it's coming in at $11 a pill -- a nearly 2,200 percent increase. Clomipramine, an antidepressant developed in the 1960s used to treat obsessive-compulsive disorder, cost 22 cents per pill in November 2012. Now, it's $8.17 -- a 3,600 percent increase.
In 2010, Amedra Pharmaceuticals bought the rights to abendazole, an off-patent drug used to treat intestinal parasites. At the time, the average wholesale price of the drug was $6 a day. By 2013, it was $120 -- a nearly 2,000 percent increase.
These are hardly the only examples the Post could have mentioned: this interactive infographic from Bloomberg charts 74 top-selling drugs for which the cost increased in the US between 2007 and 2014 by at least 75 percent, and sometimes many multiples of that. One might be inclined to wonder what's going on here with skyrocketing drug prices. Alas, the Post only offers: "The trouble is this: right now, we can't tell why prices are high, or even if they are high."
IT'S TRULY MYSTIFYING. *shrug*
Oh wait, no. No, it's not. Drug prices are not this high anywhere else: USians pay from two to six times more than the rest of the world for pharmaceuticals. Why?
Well, the short answer is that US taxpayers and consumers massively subsidize the world's pharmaceutical research costs. For a comprehensive answer, anyone (presumably including the bewildered author of the Post piece) can read an in-depth article at Medscape Medical News, helpfully entitled Why Are Drug Costs So High in the United States?
I just want to highlight a few perverse and corrupt policies that impact US drug pricing, and what is responsible for them. SPOILER ALERT: it’s conservatism.
Desperation vs. demand.
In the mythical world of the Free Market™, buyers and sellers come to a compromise price for goods and services: too high, no one will buy; too low, sellers will not have viable businesses. This is the storied principle of supply and demand, blah blah blah. But with health care, the "demand" side of the equation is driven by factors very different from those that drive demand for ordinary consumer goods. We are talking about human suffering, often profound, and sometimes where life and death hangs in the balance. When that suffering human is you—or your child, or indeed anyone you love—you will pay anything for medicine and appropriate care, even if it means you lose everything.
Even post-ACA, health care is still the number one cause of personal bankruptcy in the US:
A recent Harvard University study showed that medical expenses account for approximately 62 percent of personal bankruptcies in the US. Interestingly [sic], the study also showed that 72 percent of those who filed for bankruptcy due to medical expenses had some type of health insurance.
I hate to be a Debbie Downer, but I would be remiss if I did not point out that (a) 33 million people remain uninsured, and (b) bankruptcy and poverty are terrible outcomes. No citizen in the UK faces these problems for accessing health care. Nor do all 35,749,600 Canadians.
The ACA is based on a for-profit (read: conservative) health care reform model, one that Mitt Romney rolled out statewide as governor of Massachusetts. It did not slow medical bankruptcies.
Elsewhere, single-payer and nationalized systems like the UK's NHS negotiate with drug manufacturers a single price for the entire country's supply. By contrast, the US system is comprised mainly of multiple for-profit insurance companies and hospital systems, each of which negotiate their own pricing. In this scenario, the sole supplier of a drug has the upper hand. But where there are few large payers—or one—drug companies must offer a reasonable price if they want market access.
And here’s the kicker: government-run Medicare, one of the largest payers for prescription drugs, is prohibited by law from negotiating drug pricing. This was true before the ACA, which cemented it. That is because pharmaceutical companies got what they wanted with the ACA: “We got a good deal,” wrote Bryant Hall of the Pharmaceutical Research and Manufacturers of America (PhRMA), one of the largest, most influential lobbying groups in Washington.
One need look no further for proof of negotiation power than the government-run Veterans Administration, which is not barred from negotiating drug prices: costs run 25% to 50% lower than Medicare.
In 1992, federal Medicare spending on drugs was $400 million. By 1999 it was $7 billion. By 2013, $50 billion. I wonder what it'll be in a decade? EXCITING.
The ACA also banned reimportation: US patients cannot legally purchase drugs from another country, for example Canada. When the ACA was being cooked up by lobbyists behind closed doors, PhRMA lobbyist Bryant Hall wrote that “WH [the White House] is working on some very explicit language on importation to kill it in health care reform.” Neat, huh?
But don't feel left out, Canadians! PhRMA is coming for you, too:
"America's big drug companies are intensifying their lobbying efforts to 'change the Canadian health-care system' and eliminate subsidized prescription drug prices enjoyed by Canadians" ... "A prescription drug industry spokesman in Washington confirmed to CanWest News Service that information contained in confidential industry documents is accurate and that $1 million US is being added to the already heavily funded drug lobby against the Canadian system." PhRMA was the leading drug industry trade group behind the increased lobbying and PR campaign. PhRMA was also independently spending $450,000 to target the booming Canadian Internet pharmacy industry, which has been providing Americans with prescription drugs at lower prices than in the United States.
And the UK's NHS is barreling down that road.
Comparative drug review.
Other countries compare drugs to determine whether a new, higher-cost treatment is more effective than existing alternatives. These investigations inform price negotiation, and determine whether a drug gets approval at all. In the US, our FDA has no legal authority to consider pricing, or to compare medications to each other. Even if it did, it does not have the resources to confirm that data supplied by drug companies is accurate and complete—or not. Conservatives, chronically infected with deregulatory fever, will never task a federal agency with assessing the value of a new drug. That would interfere with the Free Market™ gouging US patients for drugs. NO ONE WANTS THAT.
But what about research and development huh what about R&D?
The pharmaceutical industry defends its practices more or less thusly: it costs over a billion dollars to bring a new drug to market, and furthermore, more drugs fail to make it than succeed. We want to incentivize new and better drugs, don't we?
YES! And that is why US taxpayers fund 85% of the basic research. No wonder US companies generate most new drug discoveries! GO USA! Strangely, we get no consideration in return. Consider the new hepatitis C drug, sofosbuvir. US patients will pay $80,000 to $160,000 for a course of treatment, while in Egypt and India the manufacturer has agreed to charge $900 per patient. And it's still enormously profitable: sofosbuvir costs only $138 to produce.
Nobody disputes that it's a risky and expensive proposition to develop a new drug. But they do dispute the numbers. An oft-bandied figure pegs R&D costs for a new drug at about $1.3 billion. Hagop M. Kantarjian, MD, professor and chair at the University of Texas M.D. Anderson Cancer Center, disagrees. In a 2013 paper, Dr. Kantarjian and colleagues suggest the figure may be as low as 10% of that:
"The figure may be inflated, because it includes ancillary expenses, salaries, bonuses, and other indirect costs not related to research or development, as well as an 11% compounded discount rate over 10 years based on stock market returns on capital investment," they write. "Other independent estimates of cost of drug development put the figure as low as 4% to 25% of this estimate."
Another analysis published in the BMJ estimates the typical R&D cost at between $60 million and $90 million. But even if the $1.2 billion figure is accurate, that is no justification for US patients and taxpayers disproportionately footing the bill. We pay in other ways, too: with people bankrupted for accessing life-saving medication, or going without it altogether.
There is a solution: Medicare For All. We could have a less corrupt and more equitable system, where greed is not the sole driver of innovation—health is. But it's not going to happen unless we find the cure for conservatism. And it sure isn’t in the interests of the pharmaceutical industry to cure that.