The price of prescription drugs continues to skyrocket in America. Pharmaceutical companies are not legally required to disclose why they are raising the prices of these drugs. Politicians like Bernie Sanders have accused these companies of “price gauging” the American consumer to the tune of billions of dollars. According to Leslie Allen, the price of 24 prescription drugs increased in by 400% from 2013 to 2015, and a few other rose by more than 1000%. Furthermore, according to a report by the Government Accountability office, “prices for 416 brand name drugs rose anywhere from 100% to, in some cases, more than 1000% from 2000-2008” (Allen, 2016). According to a Harvard poll on government action to control drug prices, they found that 7 of 10 Americans, including two thirds of Republicans, supported Medicare being able to negotiate prescription drug prices (Nather, 2015). The same poll found that 76% of Americans believe that prescription drug prices are “unreasonably high”. Currently, drug companies set prices as they see fit and the government has no control over their decisions. The government should take action to control drug prices due to the enormous burden these costs impose on the federal and state healthcare budgets as well as the out of pocket expenses they impose on vulnerable citizens. Furthermore, the government should step-in and stop drug companies from patting their bottom line by letting Americans die due to unaffordable drug prices. Pharmaceutical companies should be forced by the government to reveal exactly how much “research costs” were incurred in the development of a drug, so we can judge if their mark ups are justified. The government should prohibit profiteering by pharmaceutical companies by forcing them to index price of drugs to cost of research and development.
Drug Prices should be indexed to R&D costs, to prevent profiteering
According to the Institute of Healthcare Informatics, drug price costs reached $373.9 billion in 2014, which is an all-time high in drug spending (Leonard, 2015). Drug companies justify this increase by claiming that most of the increases are due to Research and Development, but this is simply not true. According to a 2013 GlobalData Research report, the world’s largest pharmaceutical company, Johnson & Johnson, spends $8.2 billion on R&D but made $71.3 billion in total revenue. Also, companies spend almost twice as much money on sales and advertising than on R&D. In 2013, Pfizer spent $6.6 Billion on R&D, while they spent $11.4 billion on sales and marketing; Johnson & Johnson spent $17.5 billion on sales and only $8.2 billion on R&D (Anderson, 2014). This explains why Drug Industry profits are going through the roof while Americans are struggling to afford lifesaving medications. According to experts, the global pharmaceutical market made revenues of $1.05 trillion in 2016, which is one fourth of the US federal budget in 2016, $515 billion of that trillion comes from US and Canada (Speights, 2016). Our government needs to step in to stop this outrageous profiteering by these companies. Our politicians need to stop pretending to believe the lies of drug companies and heavily regulate them. There needs to be new regulation that puts caps on how much a new drug can be priced, depending on the R&D costs, not depending on how much companies can get away with raising the price on sick consumers.
Corporate profits vs. american lives
Leslie Allen provides the anecdote of Reva Jones of Baltimore, a woman who suffers from toxoplasmosis, a disease that can cause brain damage if not treated by a drug called Daraprim. Daraprim was relatively affordable at $13.50 a pill, until one day the drugs stopped arriving completely. When her family inquired as to the reason, they found that their insurance company refused to cover the cost of the drug because the price had skyrocketed to a whapping $750 a pill. As a result Jones’s condition deteriorated and had to be taken to John’s Hopkins Hospital by her daughter (Allen 2016). If her daughter had not been present, Jones would have never gotten treatment and would have most likely died due to the primary symptoms of toxoplasmosis. The reason for the markup was that Daraprim was a new drug and the only one of its kind for the treatment of toxoplasmosis, so it’s manufacturer, Turing, decided to do what any private corporation would do when they corner a market, which is mark up the price (by 5000%) to make every cent they can no matter the cost. Although other pharmaceutical CEOs have feigned outrage over this incident, every large drug company engages in similar practices. This is when we need government to step in and regulate. We have to make a value judgement between corporate rights and human lives. Does the fact that a private company developed a drug give them the right to price it at any number they want, even when a person’s life depends on it? Sick people will do almost anything to get well, which includes paying the outrageous prices for lifesaving drugs. This is not the free market at work, this is corporate extortion. Especially when one company owns the rights to manufacture a drug, which means there is no competition. The government needs to decide how much a reasonable price would be for disease specific drugs like Daraprim so people like Reva Jones can still afford to buy them.
The dreaded R&D costs, what are they, exactly?
Whenever the issue of regulating drug prices come up, the pharmaceutical companies howl at the moon about how people don’t understand how much it costs to develop (R&D) these drugs and that any regulation of the drug industry will cause lifesaving drug innovation to stop. Let us examine the validity of this argument. From the outset they make it seem as if drug companies are struggling to stay above water due to crippling R&D costs, but according to Forbes, in 2015 the profit margin for the “healthcare technology industry” was 21% which makes it the most profitable industry of all (Speights, 2016). In 2013, the top five drug companies averaged a revenue that is seven times that of average R&D costs (Anderson, 2014). So as we can see, R&D costs are a drop in the ocean compared to the profits these companies are making. Now let us examine the claim of regulations stifling innovation; in Europe and Canada, prescription drugs have price controls. They have regulatory review boards that reduce the prices of drugs to an affordable amount for their citizens. Given these price controls, one would expect that European drug companies are making fewer drugs and therefore less profit, but to the contrary, according to topforeignstocks.com, the Swiss drug giant Novartis was the number two in the world in sales in 2013, making over $45 billion. Furthermore, other Europeans drug companies like, “Sanofi (SNY), Roche (RHHBY), GlaxoSmithkline (GSK), and Astrazeneca (AZN)”, were in the top ten list of the most profitable companies in 2013 (David, 2013). Because we know that the best way to make a profit in this industry is to develop and release new drugs, it is reasonable to conclude that the only way a company can end up in the top 10 richest company list is by being innovative. As one can clearly see, these two arguments made by the drug industry are merely excuses for them to make a profit from desperate people in a time of vulnerability to pad their bottom lines, and make sure there is no government regulations on drug prices. These thinly veiled excuses are accepted by our politicians due to the influence of money in politics. According to OpenSecrets.org, Pharmaceuticals spent $244 million on lobbying in 2016. They would not spend these exorbitant amounts of money on politicians if they didn’t expect a tremendous return on their investment, and as we previously saw by their profits and by the fact that we still have no price controls in the US, those returns were definitely made. The government needs to institute regulations that force drug companies to reveal their development costs so we can judge if the prices are justified. The US, like Western Europe, should have a federal regulator that negotiates with pharmaceutical companies for drug prices so the drugs will not bankrupt consumers.
Skyrocketing drug prices burden Federal Budgets and patients alike
According to Keehan, an economist in the Office of the Actuary at the Centers for Medicare and Medicaid Services, “health care spending as a share of the economy is projected to rise from 17.4 percent in 2013 to 19.6 percent in 2024, totaling $5.4 trillion” (Keehan et al. 2015). These costs are partly due to government healthcare like Medicare and Medicaid, which provide healthcare to elderly and poor people. When pharmaceutical companies increase the prices on drugs that the recipients of these programs need, the government is forced to cover these costs. And, because of the lack of price controls, the government has no means to regulate these companies. This ends up costing the federal budget billions of dollars annually. It is essentially a funnel from federal coffers to private corporations. According to the National Health Expenditure data, the US spent $646.2 billion in 2015 on Medicare and $545.1 billion on Medicaid. Medicare is the biggest customer for drug companies, given America’s aging population, so drug company profits are guaranteed to increase every year in this system. Countries like Britain have strict cost-effectiveness laws to prevent drug companies from stealing from the government and by extension the British taxpayers. Due to heavy influence of drug company lobbying on elected officials, reasonable laws such as this have not been passed in the US. As for people who do not have the aid of a government program, they are left to fend for themselves. If one were to end up in the predicament that Reva Jones found herself, where she was dropped by her insurance company because the price of a drug rose too much, then they would be forced to pay out of pocket for drugs that may cost thousands of dollars for a single course. For a regular middle class American, this would mean taking out loans or going into bankruptcy just so they can be healthy or avoid death.
Patents violate Free-market principles and establishes monopolies
As the system stands now, patents, which are government licenses to an inventor, allows a single corporation to hold the rights to the formula to produce a certain drug. This process essentially allows a company to market a drug at any price they want, due to the absence of price controls, with no competition, which makes it a monopoly. There are no competing vendors the consumer can go to get the same product so they must pay what the company demands of them. The situation is made worse when it comes to medicine, because it is usually a drug that can save a person’s life, which means the patient either pays what the company demands or they die, which is equivalent to blackmail. To address this issue, Dean Baker, an economist at the Center for Economic and Policy Research, suggests that the government should end all patents to drug companies and instead increase funding to the National Institutes of Health, which most people, outside of the drug industry, agrees is better at conducting research and finding cures than private industry. And, government ownership of patents would solve the price gauging problem by the drug industry and lower Medicare costs to the taxpayer, because most prescription drugs would be the price of a generic drug like Aspirin (Baker, 2016). Along with price controls, this would be a crucial step toward making the healthcare crisis much better in America.
In summary, the primary reason we don’t have price controls now is that large drug companies have lobbied our politicians to never regulate the drug industry in anyway that might decrease their profits. A majority of Americans from both of the major parties as well as most independents are overwhelmingly in favor of price controls, moreover, all the other industrialized nations have done it and have seen billions in savings in healthcare costs. Our politicians need to take a stand against the greed of the pharmaceutical industry and fight on behalf of the people, so we can have affordable medication. Although, due to current campaign finance laws which create a dependency by elected officials on the drug industry, this is unlikely to happen, unless millions of people start protesting in the streets about how drug companies are killing them. All the donor money in the world will not be able to help politicians weather a publicity storm of that magnitude, which would cause them to take real action to remedy this disastrous situation.
- Allen, L. (2016, May 20). Prescription drug costs. CQ researcher, 26, 457-480. Retrieved from http://library.cqpress.com/
- Anderson, Richard (2014). Pharmaceutical industry gets high on fat profits. BBC Business News. http://www.bbc.com/news/business-28212223.
- Baker, Dean (2016). End Patent Monopolies on Drugs. New York Times. http://www.nytimes.com/roomfordebate/2015/09/23/should-the-government-impose-drug-price-controls/end-patent-monopolies-on-drugs
- Cecere, David (2009). New study finds 45,000 deaths annually linked to lack of health coverage. Harvard Gazette. http://news.harvard.edu/gazette/story/2009/09/new-study-finds-45000-deaths-annually-linked-to-lack-of-health-coverage/
- David (2013). The Top 50 Global Pharma Companies 2013. TOPFOREIGNSTOCKS. http://topforeignstocks.com/2013/05/25/the-top-50-global-pharma-companies-2013/
- Himmelstei, David (2016). Frequently Asked Questions about single-payer national health insurance. Physicians for a National Health Program. http://www.pnhp.org/facts/single-payer-faq
- Keehan, S. et al. (2015). National Health Expenditure Projections, 2014–24: Spending Growth Faster Than Recent Trends.
Health Affairs. http://content.healthaffairs.org/content/34/8/1407#cited-by
- Leonard, Kimberly (2015). Spending on Meds Hit Record High Last Year. US NEWS. https://www.usnews.com/news/blogs/data-mine/2015/04/14/us-medicine-spending-hits-record-high
- McCauley, Lauren (2017). Big Pharma-Backed Dems Join GOP to Block Sanders Effort to End Drug Price Gouging. Common Dreams. http://www.commondreams.org/news/2017/01/12/big-pharma-backed-dems-join-gop-block-sanders-effort-end-drug-price-gouging
- Nather, David (2015). STAT-Harvard Poll: Dismayed by Drug Prices, Public Supports Democrats’ Ideas. Harvard School of Public Health. http://www.harvard.edu/media-relations/stat-harvard-poll-dismayed-by-drug-prices-public-supports-democrats-ideas
- OpenSecrets (2017). Pharmaceuticals/Health Products. Source: Senate Office of Public Records. org; https://www.opensecrets.org/lobby/indusclient.php?id=h04
- Speights, Keith (2016). 12 Big Pharma Stats That Will Blow You Away. The Motley Fool. https://www.fool.com/investing/2016/07/31/12-big-pharma-stats-that-will-blow-you-away.aspx