Because They Can
By Stephen Tuttle | June 15, 2019
President Donald Trump and Congress are working, they say, to curb the ever-increasing costs of prescription drugs. They have made it a bit easier for generic drugs to come to market, a good thing. But they have a long way to go.
The president, not surprisingly, wrongly claimed drug prices decreased in 2018. They did not. According to an Associated Press investigation, drug prices increased, on average, six percent last year. They found that for every drug with a price decrease, 96 drugs had price increases.
(Last year’s six percent increase was better than 2017’s nine percent increase, but a smaller increase isn't really the same as a price decrease. By comparison, inflation was 2.1 percent in 2017, and 1.9 percent in 2018.)
The issue is important because we Americans love our prescription drugs. In fact, though we represent just six percent of the world’s population, we consume more prescription drugs than the rest of the world combined, including a stunning 80 percent of the world's opioids.
We like our psychiatric drugs, too. Forty million of us take them, including 12 percent of our children under 16.
We are apparently very sick, very distressed, and in considerable pain. And we pay for it.
According to our Department of Health and Human Services (HHS), Americans spent $470 billion on prescriptions in 2017, way more than the rest of the world.
The cost argument drugmakers have always made is that the research and development required to create, test, and bring to market a new drug is so expensive, drug pricing reflects those costs. That sounds logical enough on the surface. Politicians and our Food and Drug Administration (FDA), which approves new drugs, certainly believe it.
In reality, they spend more on advertising and promotion, a tidy $30 billion last year, than they do on research. Of our top 10 drug makers, only Roche managed to spend more on research than it did on advertising. Most of that money is spent trying to convince doctors and other medical professionals to prescribe their drugs; only about 35 percent is spent advertising to the general public.
Intrepid researchers at Memorial Sloan Kettering Hospital in New York decided to test the cost-of-research theory a bit deeper. Specifically, they wondered how much more Americans were paying for the same drugs as the rest of the world and how that margin compared to money spent on research.
They compared the cost of the 20 drugs most commonly prescribed here to the cost of those same drugs outside the U.S. The result? The difference between how much we pay and how much everybody else pays is actually greater than all the money spent on drug research by all the drug companies in the world combined. We're subsidizing everybody else.
Many of the most outrageous price increases we read about have nothing at all to do with research. More than 60 percent of those egregious price increases of 1,000 percent or more have been made by companies that didn't even develop the drug; they simply bought the company that did.
The best example, and the current king of drug prices, is Novartis. The FDA recently approved its drug, Zolgensma, for treatment of an especially nasty condition called spiral muscular atrophy that impacts children under two and is almost always fatal. Zolgensma, one of the new categories of gene therapy, can correct the affliction with a single treatment. It's a tremendous breakthrough that has applications to other inherited diseases. But it's a little pricey.
The cost for that single treatment? $2.1 million. And Novartis had nothing to do with creating the drug. A company called AveXis developed it; Novartis simply bought AveXis and the drug patent last year.
Novartis says the price reflects the potential value of a life saved at such a young age. (If that's the new standard, it's bad news for the cost of childhood vaccines but should be great news for older Americans.)
The drug companies keep the money flowing with help from their friends in Congress. The Pharmaceutical Research and Manufacturers of America (PhRMA) reported $27 million in lobbying expenses last year. But according to Open Secrets, a non-partisan research group, individual drug companies spent an additional $184.3 million on top of that. And their political action committees (PACs), super-PACs, and employees contributed more than $40 million to political candidates in 2016 and 2018.
We take far too many drugs and pay way too much for what we do take. We're captives of the pricing whims of drug companies. The old logic for high prices — the cost of research and the costs of drugs that never make it to market — was always specious. The reality is drug companies overcharge us for the simplest reason: because they can. It's enough to make us sick.