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The Dilemma in Drug Cost

By: Elizabeth Nguyen, Director of Public Health Advocacy

Is it ethical that a country promising to “promote the general Welfare” in its own Constitution disregard how its citizens are struggling to afford life-saving drugs? The American government projects an ardent commitment to providing affordable, quality healthcare in the United States (U.S.), but skyrocketing prices for such medications seem to prove otherwise. There has been extensive legislation proposing affordable health insurance and measures to extend Medicare to an increasingly aging population yet a glaring issue affecting millions of Americans is still left untouched. Existing public policy solutions concerning the price of life-saving drugs are not adequate since they fail to prevent pharmaceutical companies from imposing excessive cost-plus markups.

The U.S. biopharmaceutical industry is one of the country’s largest, with pharmaceutical sales exceeding $850 billion per year. But when compared to the international market, American consumers are at a complete disadvantage. Exponential growth is supported by drug prices that are significantly higher than in the rest of the developed world—in 2014, costs were raised by over 12%. The lack of effective legislation to control prices have enabled pharmaceutical companies—not the middlemen, unlike what Big Pharma public relations claims—to inflate the market. Exclusive patents granted to companies decrease the variety of generic options and consequently keep the prices of drugs high. A prime example was when Swiss-based Turing Pharmaceuticals acquired the U.S. marketing rights to Daraprim, a life-saving drug that treats toxoplasmosis infections, from Impax Laboratories in August 2015. Turing then raised the price of Daraprim from $13.50 to $750 a tablet, a markup of almost 5,000% overnight. Student researchers at Sydney Grammar School in Australia synthesized pyrimethamine, a key ingredient of Daraprim, and determined that the cost of making the drug is a meager $2 per dose. This is not the first occurrence of such a large markup in American pharmaceuticals. A one-year supply of the cancer drug imatinib only costs $400 in India, but an exclusive patent for Novartis allows the company to hike up the cost to $146,000 for the same drug in the U.S.. Patients are not the only ones paying the price; welfare and social insurance companies also have to foot the bill, which means that millions of taxpayer dollars are indirectly channeled into these companies every day.

A large percentage of the consumers who rely on life-saving drugs are also Medicare patients. Medicare Part D, which covers prescription drugs for the elderly, spent $62 billion in 2015. Expenses for Medicare Part D is expected to average $111 billion per year through the next decade. However, federal law currently prohibits the Secretary of Health and Human Services from negotiating prescription drug prices. If the Secretary could require brand-name drug manufacturers to lower the price of their drugs, Medicare Part D could save on average $11 billion per year. Drug price legislation recently announced by House Speaker Nancy Pelosi includes the Elijah E. Cummings Lower Drug Costs Now Act of 2019, which would authorize the Secretary to directly negotiate with drug companies for up to 250 of the highest-priced drugs—and all insulin—every year. Advancing this legislation would be a good first step towards negotiating prices for all drugs by using international prices as a backstop, not research and manufacturing costs of each individual company. Government programs can save money paying for unsubstantiated price hikes and instead diverting those funds into paying for affordable healthcare programs.

It is concerning that drug companies can mark-up their drug prices without justification. The Trans-Pacific Partnership exacerbated this apprehension by seeking stronger patent protections for drug companies, which was one of the main obstacles to reaching an agreement with the other countries. Several states have already recognized this issue and proposed public policy measures of their own. In 2017, California passed a bill forcing manufacturers to justify price increases. If a medicine’s wholesale acquisition cost rises by 16% and/or by $40 or more, a notice must be given to the attorney’s general office with an explanation for the increase. The U.S. government can easily apply the same law into national policy. Additionally, money currently used to give patent-supported research can be used to finance research through the National Institutes of Health, giving the government more control over cost-plus markups. Pundits of price control policies have targeted the removal of innovation because of government intervention. Eliminating reason for high prices to cover research costs and disabling unjustified increases is necessary to discourage companies from escalating prices.

Current legislation does not provide oversight concerning price gouging, which is another enabler for high prices. Pharmaceutical companies pursue price gouging due to the consistently high demand for their drugs. Multiple states have tried to pass price gouging practices, but there has been backlash as to what this can do to market trends since prescription drugs are regulated and sold through a national marketplace that is not regulated by the states. A new law proposed in Maryland has authorized the state’s attorney general to prosecute firms that engage in dramatic price increases in generic drugs. Though this law only targets off-brand drugs, it can be used to create a new law that addresses pharmaceutical companies that claim they need high prices to recoup innovation costs. There is already legislation in place to protect consumers from price gouging on commodities and household essentials in times of a declared state of emergency. Why are there no laws that protect patients from having rapacious companies gouge prices on a drug that could sustain their life far longer than any household essential?

The lack of public policy to regulate such drastic price increases not only shows irresponsibility, but also blatant disregard for the wellbeing of American citizens. It is justifiably expected that the guarantee of general welfare also covers life-saving drugs, as it is impossible to promote citizens’ wellbeing when greedy pharmaceutical companies are withholding access to their lifelines in the interest of profit. Existing legislation and public policy solutions are insufficient to deal with the egregious threat that these companies pose. Over half of U.S. states have proposed new drug pricing laws and transparency legislation in the past two to three years to combat this inflation—it is high time that the national government follows suit.

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Nov 04, 2020

More regulation on drug pricing doesn't necessarily change anything. The primary reason drugs cost so much is because it's expensive to bring a new drug to market.

It often costs more than 2 billion to bring a new drug to market. Furthermore, some drugs can fail during phase 3 or 4 trials, causing a huge loss for the company since they'll never be able to sell the drug they invested so much in.

With the above in mind, the sales exceeding 850 billions don't look that large anymore. Sales don't account for expenses after all.

Drugs not many people take cost even more because to recoup the cost of researching and developing the drug, they need to give it a…

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