Pharma Bro and Drug Prices

By Philip Kim

On a global scale, the pharmaceutical industry makes about 300 billion dollars a year.  One third of that market is controlled by ten of the largest drug companies.  Six of those companies are based in the United States.  It seems that much of the success of these pharmaceutical companies comes at the expense of providing affordable pharmaceuticals for the consumers.

Pharmaceutical executive Martin Shkreli has been making headlines since last year when he acquired the company that produced Daraprim, a drug that treats toxoplasmosis, an infection that can cause blindness or death in pregnant women and people with HIV or certain types of cancer.  Shkreli decided to raise the price of Daraprim from $13.50 a tablet to $750.00 a tablet, which was a 5000% increase in the price overnight.  He later stated in an interview that he believed he should have raised the price even more.

In principle,  Shrekli’s fiduciary duty to to shareholders to maximize profits justifies increasing the price of this drug. After all, shareholders include pension funds and other organizations that are important for the stability of the economy and middle class livelihoods. However, Shrekli has been accused of using money from one enterprise to pay an earlier, failed venture in violation of securities law calling into question whether this price increase was ever really about profiting shareholders and funding research or whether it was just about enriching Shrekli.

Sadly, skyrocketing drug pricing like with Daraprim is not just an isolated incident. Other drugs have been on the rise in costs as well, such as Cycloserine.  The price for this drug went from $500.00 to $10,800.00.  Fortunately for the consumer, the company for Cycloserine repealed the huge increase.  However, this is not to say that there isn’t a problem in the pharmaceutical industry with a lack of transparency.  How are we to tell whether an exorbitant price is justified based on high production and research and development costs?  Or are we as consumers just being gouged?

The issue at hand is that the prices of drugs are not regulated in the United States like they are in other countries.  Drug companies attribute the high prices of prescription drugs to the high costs of research and development.  That explanation makes sense, however, many pharmaceutical companies do not release information on what exactly goes into research and development.  There is little transparency in costs.  The problem is that there cannot be much accountability without transparency.

While criticism of the pharmaceutical industry has usually been limited to Democrats, recently Republican presidential candidate Marco Rubio spoke out on the subject and called for a market-based solution too the problem.

On the other hand, presidential candidate Hillary Clinton proposed a plan that would limit drug companies from using federal funds for advertising.  This plan would also allow Medicare to be able to negotiate prices, which Medicare currently cannot do.  There would also be a cap to consumers on out of pocket expenses for the costs of prescription drugs.

Presidential candidate Bernie Sanders introduced a bill that would address the concerning rising costs in drugs.  The bill also looks to increase transparency in how drug companies are spending money.  This bill would “authorize the Secretary of Health and Human Services to negotiate drug prices” with drug companies to decrease costs for Medicare drug benefits.

Another way to try and tackle this problem could be to look at what other countries are doing.  In Canada, there is a drug review board that determines the efficacy of drugs and compares them to currently existing drugs.  The recommendation of the review board then helps set prices (i.e. lower) because hospitals and or other companies can help drive market forces for pricing drugs by rejecting costly medicines when there are effective and cheaper alternatives. This may not solve the problem though if there aren’t readily accessible cheaper alternative drugs for certain diseases, but a review board sure seems like it is going in the right direction.

An opinion defending current drug pricing states that the focus of high prices is misplaced due to the differences in “list price” versus “net price.,”  with Llist price is defined as whatthe price that is advertised, whereas the net price is the price paid after discounts or rebates.  But again, even if insurance companies are largely paying most of the costs of prescription drugs, that cost in essence gets passed onto the consumer through higher premiums.  The United StatesH ealth care spending in the United States exceeds that of other high-income already the highest spender on health care.

However, if list prices for pharmaceuticals can be lowered, it is feasible that insurance companies may pass the savings on to the insuredpremiums could decrease, which would in turn also help decrease healthcare costs for insurance in general.  Though, achieving tthis would require increased regulation in the pharmaceutical industry and most likelymaybe new laws through Congress.  It seems like this is the direction that politicians are going inleaning because Americans are of how unhappy with the status quodisgruntled American citizens are.  It isn’t the case that every pharmaceutical company is engaging in shady practices or price gouging, but some bad eggs have brought the industry into the spotlight.  As it currently stands, healthcare costs keep rising and thus seems to be unsustainable in the long run. Hopefully, the current discussions and bills in place lead to a more sustainable solution for all parties involved.