Last week, in the hopes of silencing my cough, I went to Isham Health Center. I left the health center with a brown paper bag stuffed full of a week’s supply of different medications, the pills rattling with every step I took. As I walked, I couldn’t help but wonder how much all that medicine would have cost, had I bought it myself. It got me thinking — how are drug prices in the U.S. regulated?
Imagine my surprise when I discovered that they’re not. At least, not really.
While the United States government subsidizes standard prescription medications through programs like Medicare and Medicaid, drug prices are actually set by the pharmaceutical companies, or “Big Pharma,” as coined by the media. And right now, there’s no limit on how much these companies can charge for their drugs, giving Big Pharma a drug monopoly in the U.S. Big Pharma’s domination of the drug industry leads to all sorts of problems. The arrangement also allows pharmaceutical companies to unfairly hike up the price of their medications in the states.
Take Martin Shrkeli’s Turing Pharmaceuticals for example. In September, the former hedge-fund manager turned C.E.O. raised the price of Daraprim, a life-saving drug that prevents malaria and treats toxoplasmosis, from 13.50 dollars to 750 dollars per pill—an increase of over 5,000 percent.
Medicine prices in the U.S. are among the highest in the world, accounting for roughly 17.7 percent of health care costs in 2014, according to OECD health data. A month’s supply Oxazepam, a drug that treats insomnia, for example, costs about 13 dollars in Canada compared to 70 dollars in the U.S. While price discrepancies have largely to do with the U.S. healthcare system, they also have a lot to do with the limits that other countries put on drug costs. So, how can Big Pharma’s monopoly on medicine be prevented?
Price control seems to be the obvious solution. In theory, having a set price range for commercial drugs would make sure that medications are both reasonably priced and relatively affordable for everyone. While this solution seems perfectly fine at first, it has a few drawbacks. Some critics argue that government regulation of drug prices would reduce pharmaceutical revenues, reducing funding for future drug development. According to the RAND Corporation, a non-profit global think-tank that conducts research and analysis, there is an underlying link between manufacturer revenues and the pace of pharmaceutical innovation: lower profits delay the development and introduction of new drugs. So while price control may benefit people in the short-term by lowering drug prices, it would only slow down medical innovations in the future.
By reducing pharmaceutical revenues, critics of government regulation also argue that price controls would make it difficult for companies to earn back a drug’s research and development (R&D) costs. With clinical trials costing upwards of 10 million dollars and R&D costing around 100 million dollars for the average drug, an emphasis on funding is justified. While many pharmaceutical companies do raise their medication prices based on R&D spending, it certainly doesn’t apply to all cases of exorbitant drug costs. Again, take Turing Pharmaceutical’s Daraprim. Daraprim, also known as pyrimethamine, is an off-patent drug that has been available for decades. The medication’s production cost has already been made back, recouping the costs of research and development, so the recent increase in price cannot be financially justified. This incident demonstrates the need for some regulation to prevent abusive price gouging.
That’s why many politicians, including Hillary Clinton, are calling for pharmaceutical companies to disclose the development costs and profits of their medicines and their rationale for charging what they do. So-called “pharmaceutical cost transparency bills” have been introduced across the country in at least six state legislatures this past year. These laws force drug companies to justify their prices. Although such transparency will allow people to monitor whether or not a drug’s pricing is fair, it doesn’t mean that Big Pharma’s policies will change. Most of these companies are run by businessmen, and their goal is to make a profit.
A better solution would be for the government to set a limit on how much net profit pharmaceutical companies can make. This would make sure that companies charge a reasonable amount — enough to sustain research and development, plus maybe 5-10 percent more for other company costs, preventing Big Pharmas from abusing their power and overcharging patients just to make more money. No matter how one chooses to approach the problem, ending the monopoly of big pharaceutical companies on medicine in the U.S. would be a step towards a future of more affordable drugs for everyone.