Drug manufacturers have unconscionably high profit margins, and the industry must rein in some of its more excessive practices, Catherine DeAngelis, MD, the retired editor-in-chief of JAMA, argues in an editorial published in the Milbank Quarterly.
“Big Pharma has crossed the line from reasonable to unethical profits,” she contends.
One reason for this situation, DeAngelis asserts, is that the U.S., unlike other developed countries, allows pharmaceutical companies to charge whatever they want as long as they don’t collude with one another in setting the prices. In other words, pharma companies can charge whatever the market will bear. For example, the hepatitis C drug sofosbuvir (Sovaldi, Gilead Sciences) costs $1,000 per pill, which amounted to sales of $3.5 billion between April and June 2015.
In addition, DeAngelis says, the U.S. Congress, influenced by pharmaceutical lobbyists, has not allowed Medicare to negotiate drug prices, as do most health care systems, health maintenance organizations (HMOs), and some insurance companies.
Also contributing to high drug prices are the mergers and acquisitions of pharma companies. For example, in November 2015, U.S.-based Pfizer joined with Irish-based Allergen in a $150 billion merger –– a move known as an “inversion transaction” –– that allows Pfizer to relinquish its corporate citizenship in the U.S. so that it may cut its tax bill by billions of dollars. Another effect of recent mergers, according to DeAngelis, is a reduction in the number of competitors, which has led to the doubling or tripling of drug prices.
“Normally, new drug prices are set only slightly higher than those of rival drugs already on the market, which typically ends up raising the price of the older drug. But if a company has few competitors or merges with its competitor, the resulting lack of, or diminished, competition means that the price of a drug can be whatever the company wants,” DeAngelis notes.
As an example of this, she describes the effect of a drug acquisition on the antiparasitic treatment pyrimethamine (Daraprim), which is used in patients with suppressed immune systems, such as those with human immunodeficiency virus (HIV) infection or cancer. In 2010 GlaxoSmithKline sold the marketing rights for Daraprim to CorePharma, which in turn sold the rights to Turing Pharmaceuticals in 2015. Turing promptly announced that the price of a Daraprim pill would be raised to $750 from the previous $17.50 –– a 40-fold increase.
Inflated drug costs also come from pharma companies paying generic-drug makers to delay launching their less-expensive alternatives, thus essentially prolonging the patents of the drugs involved. “Such practices fly in the face of the fact that generic drugs have been a valuable cost-saving mechanism for the public, accounting for about 80% of all prescriptions,” DeAngelis says.
“Whatever the actual cost of developing a drug might be, drug companies spend far more on marketing than on developing drugs. Simply stated, no drug should be sold at an exorbitant price simply because the company can get away with it,” she adds.
Legislative bills regarding pharmaceutical companies’ cost transparency are currently being considered in at least five states, including California, Massachusetts, North Carolina, Oregon, and Pennsylvania.
“We can only hope that legislative action, or even the threat of such action, will sting the consciences, or at least alter the business practices, of pharmaceutical executives. Thus far, nothing else has,” DeAngelis concludes.
Sources: FierceHealth Finance; January 17, 2016; and Milbank Quarterly; January 14, 2016.