Why Are Drug Prices So High?

(This Is The Third Segment in A Four Part Series)

The following quote will give you an idea as to the importance of prescription drugs: “Empirical estimates of the benefits of pharmaceutical innovation indicate that each new drug brought to market saves 11,200 life-years each year. Moreover, new drugs save money by reducing doctor visits, hospitalizations, and other medical procedures, ultimately for every dollar spent on new drugs, total medical spending decreases by more than $7.” (http://www.realclearhealth.com/articles/2016/09/22/a_social_contract_for_the_drug_industry_110110.html. © 2016 RealClearHealth.com.) However, the cost of drugs in this country are a huge drag on both the economy and on our federal budget. Particularly since about half of all healthcare in this country is paid for by the government. In addition, we not only pay the highest drug prices in the world, but then, through our taxes, pay another $70 billion in medical and health related research.

Therefore, politicians love to bash price-gauging drug companies. As candidates, they promise tough action, in congress, they hold televised hearings to berate drug company executives. The executives then leave the capitol building smiling. They know the tough talk and hard questions are for television audiences and the news media. Nothing substantive will change and profits will continue to soar! According to prescription-benefit manager Express Scripts Holding Co., from 2008 through 2014, the average price for commonly used brand-name drugs rose by 128%. All this power, however, comes at a cost. In 2016 alone, pharmaceutical lobbyists spent over $244 million of their clients’ money.

Drug companies complain about: high R & D costs; the fact that relatively few drugs ever make it to market; the Food and Drug Administration (FDA) for a slow, costly and overly risk-averse approval process; market forces; price gauging by middlemen; and steep discounts demanded by the big insurers. In some respects, the drug companies have a point. “The costs to bring a new drug to market with FDA approval are now estimated at over $2 billion, and only 1 in 10 drugs that begin clinical trials are ever approved by the FDA.” (See the Real Clear Health reference above)

There are several problems with our current paradigm in pharmaceutical research that emphasize weaknesses in our convoluted free-market/government interventionist system:

· American exceptionalism insists that if it isn’t American then we can’t trust it. Therefore, we will test it to the Nth degree and make it American. Only then will it receive FDA approval.

· Regulatory Capture puts pressure on regulators to maintain the status quo. The pharmaceutical lobby wants a return on the $244 million that they invest annually to protect their clients from competition.

· The current system of patent protection for pharmaceutical research is outdated, monopolistic and excessively costly for both consumers and taxpayers.

· The FDA, like other regulatory agencies, are prone to an unhealthy degree of risk aversion. They are scared-to-death of making a mistake or being criticized, so it’s easier and safer to just say no.

Let’s take a look at research and development costs relative to marketing, revenues, profits:

Company              Total Revenue             R&D          Marketing          Profit           Margin

J&J (US)                           71.3                        8.2                17.5                       13.8                  19%

Novartis (Swiss)           58.8                        9.9                 14.6                         9.2                   16%

Pfizer (US)                      51.6                       6.6                11.4                       22.0                   43%

Taken from: http://www.bbc.co.uk/news/business-28212223. Unless otherwise noted, all figures are in billions of dollars.

These companies all spent significantly more money on marketing than Research and Development. Speaking of marketing… Let’s assume that you are one of the 28 million Americans not covered by insurance. How much will you actually pay for some commonly advertised drugs? The following samples will give you a pretty good idea:

· Cocentyx: is a drug used for psoriasis and psoriatic arthritis. A carton of 2 sensoready pens cost about $8,600. The total cost for the first month of treatment comes to $33,200. Thereafter, you will pay $8,600 per month. The first year of treatment will set you back $127,800.

· Humira: is a drug used to treat rheumatoid arthritis. The cost per month is $4,700. Administered by bi-weekly injections. Total annual cost: $56,400.

· Symbicort: is a drug used to treat asthma. One inhaler (120 doses) costs about $377. The cost per month: $188 or $2,256 annually.

· Linzess: is a drug used to treat irritable bowel syndrome. You can expect to pay about $12.72 per pill or $382 per month. Annual cost $4,584.

· Trulicity: is a drug used to improve blood sugar control in adults with type 2 diabetes. The maximum dosage is one, $189 injection per week. That comes to $756 per month and $9,072 per year.

· Eliquis: Reduces the Risk of Stroke and Systemic Embolism in Patients with Nonvalvular Atrial Fibrillation. The dosage is two $8 tablets daily. The monthly cost is approximately $480 or $5,760 annually.

· Keytruda: is a monoclonal antibody that is used to treat certain types of cancer. The dosage varies, but it is common for 200 mg to be administered intravenously once every 3 weeks, at $2,250 per injection. Annual cost: $29,250.

· Viagra: is a drug to treat erectile dysfunction. The cost for one, 100 mg pill is $59.

· Cialis: is also a drug to treat erectile dysfunction. One, 10 mg pill costs $41.

In case I haven’t made my point, see the following news article: “New York-based Turing bought the drug called Daraprim for $55 million this summer. It is used to treat toxoplasmosis, a parasitic infection that can be severe in patients with compromised immune systems, such as HIV, and for pregnant women. Earlier this month, the head of the Infectious Diseases Society of America and the HIV Medicine Association condemned the price increase from $13.50 a pill to $750, noting that the average cost per year for a patient weighing more than 132 pounds would be $634,500.” (https://www.washingtonpost.com/news/wonk/wp/2015/09/21/how-an-obscure-drugs-4000-price-increase-might-finally-spur-action-on-soaring-health-care-costs/?utm_term=.f56b8e92a5c8)

There are only two countries in the world that allow direct-to-consumer prescription drug advertising: The United States and New Zeeland. In the United States, drug companies spend over $5 billion annually in direct-to-consumer advertising. I may be old fashioned, but I believe that you should go to a doctor, get a diagnosis, and then take your physicians advise. He or she may very well prescribe a more appropriate medication or cheaper generic equivalent than the product you see on television. Advertising is fine if it helps you make the decision between a Ford or a Chevy, but not when it comes to your health. Listening to your doctor’s perspective after reading a news report or article may help put your mind at ease, but the happy images, coupled with “voice over” side effects, contained in a drug advertisement add nothing to the conversation and is a waste of yours’ and your doctor’s valuable time.

Categories Other Articles by Daniel CameronTags , , , ,

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