The Charm Offensive

Consumers are angered by high costs of health care and fearful that the outrageous prices of wonder-drugs will become the norm.  At a less emotional level, “more than 70% of Americans feel that drug costs are unreasonable.”  Meanwhile the Pharmaceutical industry has embarked on a charm offensive which in TV adverts soothes the viewer with a promise to the effect that if you cannot afford your medication you may qualify for a reduced or free price.”  It’s mildly charming, but nowhere near enough to quell consumer’s anger and fear.

In the past few years, there have been lurid examples of pharmaceutical price excesses (prices quoted here are from www.goodrx.com).  Perhaps the best known high tech drugs with solid results are Sovaldi and Harvoni. They cure hepatitis-C, but at a high cost.  Harvoni and Solvadi now sell for $62,000 and $56,000 for an 8-week treatment, down from nearly $80,000 a year ago.  Treatments recommended run between 8 and 12 weeks.

Opdivo has been approved for slowing the growth and spread of cancer, such as some lung cancers.  Opdivo costs about $15,000 per month.  Humira is a drug that suppresses inflammation such as occurs with Rheumatoid Arthritis or Chrohn’s Disease.  Today, Humira is priced at about $3,800 per month even though the FDA approved it 14 years ago.  Copaxone is the most popular drug for treating Multiple Sclerosis symptoms even though it sells for $2,400 per month.

The biggest outrage in drug pricing this year comes from two “old” drugs that had been selling for about $13.50 per tablet.  Martin Skreli, an investor bought the rights to the drugs and increased their prices to stratospheric levels (e.g.  $750 per tablet).  The new prices were beyond the reach of those who depended on the drugs.  In a Congressional hearing, Skreli claimed his 5th amendment right to avoid answering questions but spoke volumes with his contemptuous smirks during the hearing on excessive pricing.  He provided the pharmaceutical industry’s detractors with decades of damning material.  Big Pharma has a big problem.

Repair work on the pharmaceutical industry’s reputation may not be completed in time to avert vindictive legislation from the new Congress and Administration.  Two presidential candidates have spoken harshly about excessive drug prices and how they plan to curb them.  There are some common elements in their prescription for reining in the drug industry.  One candidate favors forcing pharmaceutical companies to reinvest their profits into research.  Both want to allow more generic and imported drugs.  There are currently a bills in Congress that removes artificial impediments that block out generic companies from introducing competition, low-cost drugs (the CREATES Act in the Senate and the FAST Generics Act in the House.  Competition will reduce prices and generic competition has saved consumer nearly 1.7 Trillion in the last decade.

Tilting toward more generic drugs will help when only patent protection has ended for name brand drugs. Forced reinvestment won’t decrease prices and it might increase prices by increasing the invested capital.  During a shortened patent protection period, prices may be set even higher than today just to recover the investment costs in shorter period of time.  The government is not nimble enough to successfully play whack-a-mole with pharmaceutical firms’ cash flow and pricing.

Of the candidates’ proposals, allowing for importation of drugs from foreign resellers is likely to be helpful.  One proposal is to permit Medicare and Medicaid to negotiate drug prices with the pharmaceutical makers.  Some think this could have been a cornerstone of any national policy on health care, but American tax payers were stabbed in the back in order to get Big Pharma’s acquiescence on the Affordable Care Act (ACA).

There are plenty of pragmatic idea to curb excessive drug costs.  Efficiency should not be ignored – physicians and drug insurance plans should favor prescribing and dispensing drugs that are a few percent less effective than those that cost ten times more.  Free-standing legislation should also capture the essence of what an excessive price is.  It cannot be an exact dollar amount as the candidates state because some drugs cost near nothing (aspirin) and some orphan drugs actually do cost thousands of dollars due to thin demand and high lab setup costs.    Drugs given to hospitalized patients should not differ radically in price from those dispensed at a retail pharmacy.  The penalty for a drug maker pricing a drug at an excessive level should be the accelerated loss of patent protection for that drug.

Politicians compulsively offer freebies on someone else’s dime, but consumers who are mature enough to balance the family budget know the difference between good ideas and bogus pandering.  Removing the excesses in drug pricing and encouraging competition is low hanging fruit, and it is far more realistic than pretending government can pay for everything that some voters want.  The policy challenge is to balance the drug maker’s incentive to be pharmacologically inventive yet fiscally righteous.

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