To address consumers’ experience with drugs priced at outrageous levels, a hearing before the House Committee on Oversight & Reform was held.  Witness Martin Shkreli used a 5th amendment dodge to avoid testifying on his inexcusable role in the pricing of drugs.  A few in Congress were sufficiently angered that they urged HHS “to issue guidelines for “march-in-rights” to address price gouging” by pharma companies. March-in-rights give the agency the power to skirt patent protections for high priced medications developed with federal funding, effectively opening them up to generic competition.

Martin Shkreli has made outrageous drug price increases while running two companies.  Retrophin increased the price of Thiola (used for a kidney stone condition) by 2000%.  Turing Pharmaceuticals increased the price of Daraprim (used to treat toxoplasmosis) by 5000%.  The new prices are beyond the reach of many suffering with the disorders that these long-time medications had been treating.

Imprimis, a compounding pharmacy, is addressing these two problem areas.  When it has a patient-specific script in hand, a compounding pharmacy is permitted to produce a drug that competes against a patented version.  To compete with Daraprim, Imprimis adds an additional compound to its version and sells that drug for $1 instead of Turing’s $750 per pill.  Imprimis also plans a competing drug for Thiola.  The “script in hand” requirement may add a small amount of cost and delay, but that inefficiency is overwhelmed by the power of price competition.

Shkreli’s companies are not the only ones to hike prices for existing drugs. Over a one-year period, the price of Glumetza diabetes pills increased by 900%, Lantus insulin increased 34%, and Isuprel increased 600%.  Express Scripts says prices for brand-name medicines more than doubled in five years, and overall drug spending went up 13% in 2014 after years of declines.   Faced with high out of pocket costs, patients either cut back, do without, or ask physicians for a cheaper but less effective prescriptions.

Express Scripts provides drug insurance to 85 million people.  Along with CVS, Express Scripts has been able to stop the inexorable price increases coming from big pharma. Sometimes negotiation means refusing to buy the drug for their massive customer base.  In the second quarter of 2015, the prices they pay manufacturers were held to a 0.4% increase – about one tenth of what had become typical.  Unfortunately, Medicare with its 37 million drug beneficiaries has not been an effective negotiator, perhaps because it allows price negotiations to be balkanized into many smaller plans, and there are impediments imbedded in law that make it ineffective.  The Medicare Prescription Drug Price Negotiation Act of 2015 should produce helpful results for consumers.

The pharmaceutical industry often uses “R&D” costs to explain stratospheric drug prices.  Those costs are real but they are only 20% of the drug makers’ cost and they cannot explain aggressive price hikes on drugs that have been in the marketplace for a decade.

Competition is the preferred solution to the problem, but the government must not handcuff the parties and then stand on the sidelines screeching about corporate profits.  Importation of drugs from abroad must be lawful.  Prices offered to Medicare and Medicaid must not be higher than those offered to foreign countries.  Medicare and Medicaid should be permitted to negotiate drug prices for their beneficiaries, and Hill hearings should include good-faith assessments of impediments to government negotiating the best prices for the taxpayer.