Commentary: You may have heard me before on KRWG-FM railing against the foolish and wasteful bombardment of TV advertising by the pharmaceutical industry, especially on the major network news shows.
Drug companies spend almost $6.5-billion annually advertising directly to consumers in the U.S. But that’s nothing compared to the $24-billion spent per year marketing to doctors, luring them with free golf trips and other perks.
All that exposure, much of it irrelevant to most of the TV viewing public, is only one reason that drug prices are artificially high.
AARP, The American Association for Retired Persons, recently published An Insider’s Guide to Why Drug Prices Keep Rising, Despite Widespread Complaints. The report takes a deep dive into why drug prices are so high.
“Drug prices doubled in 10 years,” says AARP CEO Jo Ann Jenkins. “That’s too much.” In fact, looking at 2008 – 2016, the increase is even more dramatic: 208 percent, according to other data reported by AARP.
How can drug makers charge so much? “Because there’s nothing stopping them,” responds Leigh Purvis, director of health services research for the AARP Public Policy Institute.
The AARP report points to some recent examples:
· A new cancer drug is more than $150,000 a year per patient
· A new muscular dystrophy drug goes for $300,000 annually
· A bladder cancer treatment costs $12,500 monthly
Collectively, Americans spent nearly $500-billion in 2015 on prescription drugs, according to the AARP. That’s about an eight percent increase over the previous year, compared to a national inflation rate of 2.2 percent.
“The trends that we’re seeing are simply unsustainable,” cautions Purvis of AARP’s policy institute. “More people are being forced to make trade-offs between paying for their drugs and for food or rent.”
Unending Inflationary Spiral
Like higher education, health care remains one of the most inflation-prone economic sectors, yet drug makers contend that their total costs are far less considerable than hospitalization and surgery, for example.
The main reason for high prices, drug companies insist, is the cost of developing new drugs. Critics claim the companies use misleading information and overstate the true cost levels of research and development, especially capital vs. operating costs.
Regardless, the pharmaceutical industry is among the most profitable of any.
Amgen’s profit margin is a whopping 42.6 percent, for example. By contrast, General Electric’s profit margin of 14.4 percent is considered well above average. Still, it’s only half of Johnson & Johnson’s 29.4 percent.
Five Key Steps to Fixing the Problem
There are multiple factors driving high drug prices in what has become a contorted, overly complex, marketplace. One of them is patent law.
“Pharmaceutical companies have become adept at coming up with strategies to extend their monopoly on a drug beyond the expiration of its original patent ... (seeking) approval for a ‘new’ product that is a slight variation on the original,” the AARP reports. The result is cheaper generic versions of the drug are withheld from consumers.
Along with the fact that international competition is virtually locked out of the U.S. drug markets, patent law clearly provides an unfair advantage to drug makers.
Multiple middlemen also pose a huge problem, because they too make drugs more expensive. “Insurance companies rarely negotiate prices directly with manufacturers,” observes the AARP. “Instead, most insurers work with pharmacy benefit managers,” who act in their own, not the patient’s, interest.
This also contributes to an opaque, non-transparent consumer marketplace that can’t tell how well one drug works compared to another like it, never mind the total lack of information on actual vs. insured prices.
Another driver of ever-escalating prices: Medicare is blocked by law from negotiating prices, thanks to the drug companies’ friends in Congress, who bought their argument that allowing Medicare to leverage huge group discounts, as the Veteran’s Administration is allowed to do, would constitute price fixing.
We are talking about blatant favoritism, along with a strong dose of hypocrisy. Both have combined to give this industry an unfair advantage.
“The pushback against high drug prices has clearly begun,” the AARP report states. Other influential stakeholders are joining with the AARP, including the powerful AMA, the American Medical Association. Both of these groups and other allies pack a powerful Capitol Hill clout, but placing the pharmaceutical industry under stricter regulation would be akin to out-lobbying the NRA on tighter gun control laws.
The pharmaceutical industry has a free pass compared to many other industries facing much higher levels of scrutiny and accountability in the U.S. Its abuse of power outside the halls of Congress spans decades, to the degree that it will be a tall order to bring about key solutions outlined in the AARP report:
1. Let Medicare negotiate drug prices
2. Allow more drugs to be imported from Canada and Europe
3. Create transparency in drug pricing
4. Provide for easier drug comparisons
5. Implement “value-based pricing” based on a drug’s effectiveness
Getting Away with Murder
There are multiple bills in Congress calling for constructive change, including the bipartisan FAIR Drug Pricing Act. Plus, a number of states are taking legislative and regulatory action.
In his first joint address to Congress early this year, President Trump declared, “We need to work to bring down the artificially high price of drugs and bring them down immediately.”
Candidate Trump said it even more poignantly: “The drug companies are getting away with murder.” He was right.
Richard Kadzis is a frequent contributor to KRWG’s Viewpoint series. He enjoyed a long career in journalism, corporate advocacy, public relations, economic development and politics.