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Tuesday, 23 October 2018 06:11

Why Americans Keep Paying More for Drugs

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benjaminsPhoto via Torange.biz

You may remember a few years ago, when a pharmaceutical company named Turing raised the price for Daraprim, a medication known to help with AIDS-related issues. The company bought the rights to a 60-year-old drug and changed the pill price from $13.50 to $750 overnight. While the public outcry was absolutely justified and that case was disturbing for obvious reasons, drug prices are constantly being raised with little to no public knowledge. 

It's not news that it costs a lot of money to be sick in the US, but why exactly is this true and why can companies raise prices with no consequences? The main reasons Americans overpay for drugs are lobbying tactics, FDA laws protecting drug companies from competition, and the persistent myth that drugs cost exorbitant amounts of money to design and manufacture. 

Americans pay more for drugs than any other developed country in the world, which according to "PBS NewsHour," equates to "40 percent more than the next highest spender, Canada, and more than twice as much as countries like France and Germany." The high margins we pay are a direct result of slick lobbying on the part of pharmaceutical companies. Even as far back as 1991, The New York Times quotes pharmaceutical lobbyists trying to convince us that a price ceiling for drugs, similar to price caps already in place by other industrialized nations, would backfire. The reasoning, according to the lobbyists, is that lower costs would stunt research and hurt people in the long run because there would be less frequent advancements in drug production. This rhetoric existed long before the 1991 article, and although it's been written about, discussed and fought over, we still haven't caught on. We're still being impacted by the same tactics, and as recently as 2014, Congress banned Medicare part D (Medicare's prescription drug plan) from negotiating drug prices -- a practice Medicaid, the VA and private insurance companies engage in to keep drug costs lower. Medicare users represent some of our most vulnerable population: people aged 65+ and people with disabilities. With no ability to negotiate, the cost burden is shifted to Medicare users, leaving many people unable to afford the rising costs.

It's important to note, however, that even with the ability to negotiate prices, many Medicaid and VA members are still unable to receive the medications they need. Since budgets are limited, people with the same illness are put on a sliding scale and only the most severe cases will receive medicine. For example, there is a drug called Sovaldi that has a high cure rate for hepatitis C, but costs tens of thousands of dollars for a 12-week treatment program that is given out on a case-by-case basis. Many veterans with hepatitis C (a disease many veterans claim to suffer from due to military-regulated jet injection vaccinations) are forced to wait until their case is beyond bad, rather than prevent the case from worsening in the first place. This logic doesn't seem to make sense, but because of high costs, there's no other choice. 

Health insurance companies face the same problem as Medicaid and the VA. Even with health insurance, consumers often pay high out-of-pocket costs when receiving prescription drugs. Unfortunately, the sale price of a drug is not determined by affordability to users, but rather by whether or not an insurance company or health care system will pay for it. As a response to price hikes like Daraprim, the drug with the 5,000 percent increase, along with many other less known off-patent drug price hikes, hospitals have decided to start their own drug manufacturing rather than attempt to negotiate prices down. Pharmaceutical lobbyists blame insurance companies rather than high drug prices for out-of-pocket costs. CNBC quoted Robert Zirkelbach, spokesman for lobbyist organization PhRMA, as saying that rising drug prices are caused by insurance companies forcing patients to "pay an ever-greater share of their medicine costs." While this may be partly true, Zirkelbach fails to mention that the initial price of medicine sold to insurance companies is inflated far beyond the cost of development and manufacturing. 

To make matters worse, the FDA has laws in place that prevent competing pharmaceutical companies from making an up-and-coming drug for at least seven years. This means there is no possibility for a generic version of a new drug for at least seven years. This is completely antithetical to the idea that drug prices are a reflection of market value, as pharmaceutical companies would like you to believe. The two main things driving a free-market, affordability and competition, are totally disregarded when it comes to pharmaceutical drug prices. As discussed by the International Business Times:

To determine the highest possible list price for a new drug, companies calculate what patients and insurers currently pay for competing drugs or surgery. If there are no other medicines or surgical treatments for a given disease, the company will evaluate the cost of allowing that disease to remain untreated -- a calculation that can drive a drug price to astronomical heights.

Contrarily, the governing bodies of other nations put a price cap on drugs and negotiate prices based on the actual benefit and necessity of the drug. Pharmaceutical companies are still able to maintain high profit margins and high research budgets in other countries despite drug costs being far lower than in the United States. 

If you remember the 2016 presidential election, there was a lot of talk on both sides to form a plan preventing unnecessary price increases, but unfortunately, not much has changed by way of new regulation. With so much going on politically, it seems as if the affordability of our health care system has gotten lost in the shuffle, but it doesn’t change the fact that it’s high time pharmaceutical companies quit making price determinations based on nothing but their own greed. 


Max Gottlieb is the content editor for Senior Planning and ALTCS in Phoenix, Arizona.