The alarming rise in the costs of drugs and the irresponsible behavior of pharmaceutical companies

Among all existing industries, the pharmaceutical sector is differentiated by the unique feature that it aims to fight diseases and conditions, thus directly contributing to the improvement of lives across the globe. With a focus on a basic human need such as health, pharmaceuticals have proven to be a highly profitable, prosperous, and ever-growing industry. Since 2012, there have been over 10,000 different drugs in the research and development (R&D) pipeline each year, reaching a high of 14,872 in 2017. The industry has shown continual growth, tripling from only 1,198 companies with active pipelines in 2001 to 4003 companies in 2017. This growing trend will continue due to the combined effects of a growing global population, as well as an aging population, giving the industry a positive outlook.

Unaffordable Pricing

Despite its profitability however, we continue to see rising pharmaceutical drug prices. Prices have reached an all time high, with the cost of brand name drugs more than doubling in the last decade alone. Costs are posing a great threat to consumers today as they find it increasingly difficult to afford these products.

The patient is the heart of all healthcare and pharmaceutical practices. However, it appears that revenue is currently overshadowing the patient-centric values of the industry, creating tension between drug manufacturers and consumers.

In response, pharmaceuticals persistently reason that high prices reflect the cost of medical innovation and R&D, as well as implementation of stricter regulation tracing back to the Thalidomide tragedy. In 2014, the Tufts Center for the Study of Drug Development calculated the average cost to bring a single drug onto the market to be $2.6 billion; this figure includes the sunk costs of failed drugs as only 10% of all drugs gain approval. However, Harvard’s Aaron Kessielheim has reported that only 10-20% of the industry’s revenue is put back into R&D efforts, whereas 20-40% is dispersed into the marketing department.

Further skepticism arises when companies such as Turing Pharmaceutical and former CEO Martin Shkreli gain public attention for inexplicable price hikes, issuing a 5000% price markup overnight.

Due to the nature of the industry, setting prices at unaffordable levels classifies as irresponsible behavior in that corporations are denying a better quality of life to those in need. High prices make drugs unobtainable; it encourages noncompliance and discontinuation of treatment amongst users, both of which are detrimental to the lives of many.

As a resolution, it is necessary to consider price controls in the pharmaceutical industry such as the price cap placed on the price of bread. Medicine, like bread, is ultimately a basic human need and cannot be denied to those in need.

International Price Gaps

It has been found that American consumers typically pay 50-100% more for identical pharmaceutical products than other countries around the world. Imatinib, used to treat chronic myeloid leukemia, costs American consumers $92,000 per year, but only $46,000 in Canada and $29,000 in Mexico. Even with discounted prices and medical insurance covering as much as 50% of the costs, American consumers still pay a greater amount to obtain treatment.

If innovation is truly behind such high prices, it should be consistent across the globe. Rather, the American market is being exploited due to differences in governance and regulation. The degree of government involvement appears to have a great impact on pricing levels within that country. In the United Kingdom and other European nations, the government operates under the obligation that taxpayers should only pay for products that are proven effective and priced reasonably for its quality. The National Institute for Health and Care Excellence (NICE) works closely with pharmaceutical manufacturers to negotiate low and fair drugs costs for UK consumers; release of the drug is delayed if an agreement can be reached. As a result, UK consumers pay about half as much as Americans.

In contrast, the United States government has a very limited role in the pharmaceutical industry and pricing decisions, allowing the sector to manage much of its own functions through regulatory and compliance programs. This has given manufacturers leeway to charge unthinkable prices as there are no federal laws restricting high pharmaceutical pricing.

Discrediting NGOs

Nonprofit foundation ICER – Institute for Clinical and Economic Review – has been established in the U.S. to evaluate the price list of pharmaceutical drugs and ensure that consumers pay a fair price. Much like NICE, ICER conducts research and comparative studies into drugs on or entering the market to assess their value and efficacy, using the “quality-adjusted life year” or QALY calculation. Through this method, ICER has been able to influence pricing decisions in the industry, particularly Gilead’s 46% price cut on Sovaldi, a treatment for Hepatitis C. However, their work has yet to gain acceptance by pharmaceuticals or the U.S. government, and still battles against large corporations to negotiate fair pricing. In fact, lobbyist groups have launched programs solely meant to discredit the work of ICER, with no intervention by the U.S. government. This unethical use of corporate wealth and power, which resembles the overuse of strategic lawsuits against public participation (SLAPP), has to be effectively and systematically countered.

Market Monopolization

Upon approval by the FDA, drugs are patented by the government for a defined period of time. This allows pharmaceuticals to monopolize the market with that specific drug, enabling them to charge unaffordable rates due to few or no competing drugs. These practices go against U.S. Antitrust Laws and the Federal Trade Commission Act which ban unfair methods of competition among businesses, such as monopolizing the market. The Antitrust Laws aim to protect the process of competition, keep prices down for consumers, and keep product quality high. So in markets with no pricing controls, Antitrust Laws function to encourage and ensure good competition, an element absent in the pharmaceutical industry.

Irresponsible Corporate Lobbying

Similarly to what has been highlighted in a previous article for the gun industry, pharmaceutical companies have adopted irresponsible lobbying practices. In particular, manufacturers and lobbyists have found ways to protect and lobby for patent extension practices. When patent expiration nears, it has become customary for manufacturers to obtain additional patents on different components of the same drug, in order to further delay the release of any generic brands. For example, patents can be granted on new formulations of the same drug, a new route of administration, or a new ‘racemic’ or chiral switch in drug composition. It is also known that some manufacturers pay generic competitors to withhold their products from the market, a common occurrence in the industry referred to as ‘pay-for-delay.’ These practices allow big players to remain the sole product on the market and keep prices high.

Additionally, lobbying practices have been very influential in the industry, pushing or preventing laws and regulations in favor of pharmaceutical corporations, but against the consumer. In the first six months of 2017, $145 million was spent in lobbying practices alone, including healthy donations to political campaigns and funding advertising campaigns for political candidates.

Conflicts of Interest

Moreover, highly influential individuals appointed to work on the U.S. health and drug policy have personal ties to the pharmaceutical industry. Joe Grogan, formerly affiliated with pharmaceuticals Gilead Sciences and Amgen, now serves as the White House’s director of health programs. Scott Gottlieb, former consultant in the pharmaceutical industry, now serves as commissioner of the FDA. These personal relationships between government officials and the industry give rise to conflicts of interest. It presents a high likelihood that decisions are not being made in the interest of patients and consumers, but in the interest of pharmaceutical corporations and their affiliates.

More than two dozen legislative bills to combat high drug prices have been proposed to Congress. Lawmakers have suggested options such as allowing the importation of cheaper medicines, or banishing patents on modifications to existing drugs. Yet no progress has been made. Instead, focus has been placed on issues beneficial to pharmaceutical corporations such as rolling back regulations to allow for the extension of patents overseas.

Possible Corporate Social Responsibility Solutions

The moment the patient becomes displaced as the core of the industry, in the absence of true government intervention, irresponsible corporate behavior arises. To resolve these issues and prevent the monopolization of the market, there must be greater federal presence and control over the U.S. pharmaceutical sector. As mentioned, it is worthwhile to consider pharmaceutical price caps. The quality framework of analysis developed by programs like ICER and NICE must be implemented by law to reduce the pricing power held by manufacturers.

Additionally, lobbying practices must be widely recognized as corrupt activity and be closely monitored by the government or independent third party. Corrupt practices such as lobbying and fraud is estimated to consume 10-25% of all global spending on public health. These millions of dollars wasted can instead be used to cover the increasing cost of R&D and innovation. Focus could then remain on true intervention schemes to lower drug costs, thus reducing overall consumer expenses and lessen the likelihood of medical noncompliance.

6 thoughts on “The alarming rise in the costs of drugs and the irresponsible behavior of pharmaceutical companies

  1. My colleague and I both faced chronic illness in 2010. I had the benefit of NHS treatment unlike my American colleague. A decade earlier, Novartis had been helpful with their donation of drugs for a lady facing amputation and their Shared Value initiatives are helping the developing world, but for an American without health insurance the prognosis is bleak. https://www.linkedin.com/pulse/india-novartis-free-market-capitalism-jeff-mowatt/

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    1. Thank you for your insightful comment. It is very interesting to see a side by side comparison of the two very different experiences in regards to access.

      The traditional concept of profit maximisation all seems to me a never-ending cycle. As companies enter one market to progress the quality of healthcare in that region or country, they neglect another who may be a more developed country, but still have a large population that are unable to access the products/services at the prices being asked of them. Profit maximisation does not take into account that the country’s success is not reflective of all its citizens, and those most at risk may not be able to afford treatment.

      Some argue that business is give and take, but when it comes to healthcare, it must not be so. Your work is very inspiring as you are aiming to develop a different aspect of these communities, one which will be sustainable for the future.

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  2. Thank you for posting an interesting answer. The reason for the exorbitant high pricing of pharmaceutical drugs, however, has another reason. Allow me to use something I wrote on another forum recently.

    “Wherever there is a monopoly there are high prices. Conventional medicine has an almost total monopoly in most health care systems, especially in the developing world – so much so that drug companies are now persuade our governments and politicians to make their drugs and vaccines mandatory.

    Whenever we listen to a conventional doctor they tell us that there is only one treatment (and too often that there is no treatment) for specific illnesses and diseases. What we forget is that there are many alternative medical therapies that can offer treatment, usually treatment that is both safer and more effective than the drugs our doctors give us.

    Alternative medicine is the natural competitor of conventional medicine. That is why conventional medicine hates therapies like homeopathy. On this forum alone you will find that homeopathy is regularly trolled – it does not work, it cannot work, there is no evidence, and other similar nonsense.

    So to reduce the exorbitant prices that the pharmaceutical industry charge for their drugs and vaccines, this monopoly has to be broken.”

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  3. Thank you so much for your comment Steve!

    Yes, this is another serious issue not covered in the post, and goes back to the education materials given to patients by their physicians. Of course not every aspect of a condition or about the medication/treatment can be given in patient information packets, however, it is very apparent that healthcare institutions are very selective about the content that is/is not included in these handouts (especially in regards to alternatives).

    There is also the issue of not only governments and politicians being persuaded, but also individual doctors being paid out directly by pharmaceutical firms to influence prescription schemes and habits. This is even a problem in the UK.

    Database shines light on pharma payments to UK doctors – https://www.ft.com/content/b3e42806-3ec7-11e6-8716-a4a71e8140b0 via @FT

    Until these behaviors are properly addressed, the system will only get worse; but it all starts with an uprooting of current goverment and regulatory practices.

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  4. This is an interesting comment…”If innovation is truly behind such high prices, it should be consistent across the globe. Rather, the American market is being exploited due to differences in governance and regulation. The degree of government involvement appears to have a great impact on pricing levels within that country.”…does it make sense to look at it from the angle that these governments are maybe behind the curve and that prices will rise there too? Not advocating this but demographics play a huge part in exposing actuarial disconnects. And we are starting to run into this issue here which is exposing the issue. Since European countries have been more socialistic in nature, does it take time for Buchanan’s “Death of the West” theory to take place there…leading to drug price increases due to the lessening amounts being paid into the system?

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  5. Thank you for your comment Dan.

    This is a very valid point; manufacturers feel the need to increase prices elsewhere to compensate for the lack of revenue in certain countries. This is indeed driving a large portion of the US population into poverty, even extending beyond healthcare. So yes, these countries are suffering and will continue to suffer as others benefit from the lower costs and become more developed nations. It is inevitable that in the future, the tables will turn and today’s wealthier countries (or regions of them) will be worse off than the second and third world countries today. There must be a solution to this issue or we will be stuck in a never-ending cycle.

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