Congress’ Drug Addiction

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Posted 2/26/16 on Employee Benefit News.

The Congressional committee that recently demanded Martin Shkreli’s appearance must have hoped to spotlight a smug jerk responsible for the outrageous prescription drug pricing that we’re all up against. Of course there are lots of Shkrelis running drug companies, but most are shrewder and less brash, and might not make for such good theater.

Rep. Elijah Cummings (D-MD), one of the Committee’s questioners, seemed to think that his witness could move healthcare forward by disclosing the machinery of the drug sector’s excesses. “The way I see it, you could go down in history as the poster boy for greedy drug company executives or you could change the system. Yeah, you.”

Excessive treatment and cost are at the core of the entire U.S. healthcare crisis. The fact that other societies and a few innovative firms here consistently deliver equal or better quality care at dramatically lower cost betrays the idea that conventional U.S. healthcare is necessarily superior or even appropriate.

Every part of healthcare is guilty, but the pharmaceutical sector is a case in point. An open record of lobbying spending and what pharma has obtained from Congress makes clear that its contributions have worked to that sector’s economic advantage and against the interests of American patients and purchasers.

Open Secrets data show that, between 1997-2015, Congress accepted $3.3 billion in campaign contributions from the pharmaceutical/health products sector, 43% more than they received from insurance, the second most politically influential industry. That averages out to about $181 million annually over that 18-year period, or a stunning $411,000 per legislator per year.

These numbers are chump change compared to the drug market. At $985 per person in 2011, the U.S. has the world’s highest drug spend by far, more than double what other developed countries pay on average ($483) for approximately the same benefit. In 2015, the U.S. had aggregate prescription drug sales of $374 billion. In other words, we spent about $190 billion more on drugs last year than other industrialized countries would have for the same population. And this figure is deceptively low, since 20-30% of Americans remain uninsured or underinsured, and can’t afford drugs and other treatments.

This excessive drug spending was stoked by a lobbying investment totaling only $235 million in 2015, or just 0.06% of that year’s total prescription drug spend. Evidently, when an industry sector works at scale, policy can be influenced incredibly cheaply.

But policies forged in the special interest yield shamelessly conflicted mechanisms. For example, once a drug is approved by the Food and Drug Administration (FDA), the drug’s manufacturer can set virtually any price it wishes without a rationale tied to the cost of development, the drug’s value to patients, or what is paid in other countries for the same drug. How does that play out? Consider Gilead’s cure for Hepatitis-C treatment, Sovaldi. At $1,000 per pill, the cost has wreaked havoc on health plan budgets and dramatically curtailed patient access to the drug. Meanwhile, the same drug is available for $11 per pill in Egypt and $4 in India.

A related head scratcher is Congress’ prohibition against Medicare negotiating drug prices. The government must pay whatever price is demanded on behalf of millions of subsidized patients using that drug. From the vendor’s perspective, it’s hard to imagine a better deal than having the purchaser let you set any price and then unreservedly guarantee that the bill will be paid.

Drug policy has become emblematic not only of the larger healthcare cost problem, but of a deeply dysfunctional Congressional practice that threatens patients’ interests and our nation’s long-term economic stability. Candidates Clinton, Sanders and Trump have vowed to address Medicare’s prohibition on drug pricing negotiation. Anticipating a challenge to the status quo, pharma has already launched a well-funded campaign that targets 7,000 policy influencers. The worry is that, unless something changes, we already know whose side Congress is on. The Shkrelis.

 

9 comments

  1. “once a drug is approved by the Food and Drug Administration (FDA), the drug’s manufacturer can set virtually any price it wishes…”
    well, of course it can. are there limits for how much apple can charge for iphones? or tesla for its automobiles?
    sorry, but your comment is nonsensical…and while pharmaceutical companies are free to set prices, as you well know physicians and formulary committees are free to prescribe (or not prescribe) the company’s drugs.

    1. No one is going to die because they can’t afford an iPhone or a Tesla. However, if a person is dying from the effects of Hep C and needs that one drug that is a cure but is unaffordable at $1,000 a pill, he or she must just be resigned to certain death? In my mind life-saving medications do not fall into the same category as elective consumer commodities.

      1. “In my mind life-saving medications do not fall into the same category as elective consumer commodities.”
        the problem is that while many (most?) people feel the same way you do, pharmaceutical companies are subject to capitalist economies just like consumer commodities. capital demands a positive return or it will go elsewhere…capital doesn’t care whether its being invested in sofosbuvir or iphones. as long as most of our drugs come from publicly-held pharmaceutical companies, their shareholders which include people like you and me — whether directly or indirectly — will try to maximize returns.
        in my perspective, the only way to get less-expensive drugs while maintaining investment is to look outside of publicly-held companies. the arnold foundation is doing some great work here: http://www.arnoldfoundation.org/laura-and-john-arnold-foundation-announces-7-2-million-in-grants-to-address-the-rising-cost-of-pharmaceutical-drugs

        1. So, Ben, your position is that pharma’s only resort to continue attracting adequate investment dollars to keep new drugs in the pipeline is to bribe Congress into paying double or more the rate of anywhere else in the world, and to ensure that Americans can’t go outside the borders for less pricey versions of the same thing. The pricing and value of their drugs within a capitalist environment isn’t enough.

          1. not precisely.

            what i am suggesting is the pharmaceutical industry behaviours you describe (“bribe Congress…,” “ensure that Americans can’t go outside the borders…”) is no different than other industries. energy, technology and all other industries lobby the government to maximise their relative positions.

            what i do suggest is that if we posit high drug prices are a problem, we must acknowledge that such prices are the byproduct of a system…and pharmaceutical companies are only one of multiple stakeholders in this system.

            a systemic problem demands a systemic response…pointing fingers to assign blame is unhelpful.

  2. Ben,

    I wholeheartedly agree that high drug prices are a byproduct of a larger system, which is why I pointed out that the real fault lies in Congress’ open willingness to act in the special interest over the public interest for money. I don’t know how I could have been any more clear about this.

    And contrary to your argument, pointing fingers by way of specific examples is very helpful so professionals and lay readers can get a sense of the mechanisms involved and the magnitude of the numbers. The fact that pharma is the highest contributing industry sector and has obtained some of the most outrageous anti-competitive advantages as a result makes using them as a case study all the more important. The pharma cost problem is exceeded in aggregate only by the health care enterprise as a whole which, as RAND has shown and I have described before, now absorbs $4 out of every $5 dollars of household income growth.

    Any effective effort at course correction must begin with the basics and pick its examples carefully. As far as I’m concerned, the excesses perpetrated by pharma, with the complicity of Congress, show perfectly the serious trouble that the path of trading money for favors has gotten us into.

    1. hi brian, thank you for the thoughtful response.

      while we largely agree, i think the point at which we differ involves potential solutions to the problem of high drug prices. to my mind, we need an alternative to traditional capital models funded by venture capital or public equity markets. in this vein, i like some of the recent initiatives from the arnold and gates foundations, as well as some of the recommendations by jack scannell.

      in any event, i appreciate your willingness to engage in dialogue. thank you.

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