Rising Drug Costs — and Rising Pharmaceutical Profits
The inflated costs of prescription drugs in the United States isn’t news to anyone familiar with the healthcare system. Major news outlets have picked up on stories such as the conviction of Martin Shkreli, who first gained attention in 2015 by raising the cost of Daraprim from $13.50 per pill to $750 — an increase of over 5,500%. Another “big pharma” company, Mylan, also came under fire in recent years for raising the price of their EpiPen by 500%.
Earlier this year, Marathon Pharmaceuticals spent $370,000 to purchase the license to a steroid called deflazacort that is already in use in the United Kingdom and other countries, like Canada. They got FDA approval for its use in the United States (where it was technically classified as a new drug), called it Emflaza, and charged $89,000 for it. Typical costs in Europe and Canada were between $1,000 and $2,000. That’s a price hike of approximately 6,000%.
Pharmaceutical companies consistently post double-digit profit margins year after year, and although the go-to defense for the high price of prescriptions is that new drug research is expensive, all of the top ten largest pharmaceutical companies in the world (except Hoffmann-LaRoche) spend more on sales and marketing than research and development, and all of them have posted profit margins — with research costs included — in the double digits. Pfizer, for example, spent $6.6 billion on research and development but $11.4 billion on sales and marketing. The end result was a 43% profit margin in 2013.
Gone are the days of Banting, Salk, and Sabin.
However, Louisiana is seeking to change the status quo, at least as it pertains to public health interests.
Louisiana, Hepatitis C, and Medicaid.
According to The Washington Post, approximately 35,000 residents in Louisiana are Medicaid-dependent, completely uninsured, or in the prison system and have hepatitis C. Hepatitis C is a virus, and there are many different forms that require different types of treatments. The majority (between 75% and 85%) of people who are infected with hepatitis C develop chronic hepatitis C, which is a long-term infection that can result in cirrhosis or even liver cancer.
New antiviral treatments have been remarkably effective, with a cure rate of 90% for some forms of the disease. Unfortunately, these new treatments are not cheap. To treat Louisiana’s uninsured, Medicaid, and prison population who have been infected with hepatitis C, it will cost approximately $764 million at current drug prices. The total discretionary budget in Louisiana (which is also used to fund infrastructure projects, public services, K-12 education, and more) is only $3.6 billion. That means treating hepatitis C would burn through well over 20% of the state’s budget.
Louisiana’s Health Secretary Rebeckah Gee put it succinctly: “we don’t have the resources.”
Patent Law May Provide a Path to Lowering Drug Prices
An old patent law, U.S. Code Section 1498, could allow the government to work around pharmaceutical patents and work with a different supplier to manufacture and produce cheaper versions of the powerful (and expensive) antiviral drugs that are currently being used to treat hepatitis C patients. These generic drugs would only be available to the government for use within a specific population (like those suffering from hepatitis C who are also uninsured, on Medicaid, or getting health care in the prison system), and the government would still need to provide the patent holder with “reasonable” compensation for the generic drug’s production and use. This compensation would likely be significantly lower than the cost of the patented version.
In order to enact this solution, however, Louisiana officials would need to first get approval from the Secretary of the U.S. Department of Health and Human Services. And they would ultimately need to prove that taking this action would benefit the public interest.
If this measure were to succeed in Louisiana, though, many other states, like California, would likely follow suit. With state governments able to effectively and economically treat disadvantaged populations, public health will increase and the long-term costs of care for these individuals will also be significantly reduced.
Canopy Health: Keeping Brokers Informed
News in the healthcare industry breaks quickly, and Canopy Health is here to help insurance brokers stay abreast of new developments in policy, technology, and more. We’re also here to help you get the best possible care for your clients.
Anderson, R. (2014, November 6). Pharmaceutical industry gets high on fat profits. BBC. Retrieved from http://www.bbc.com/news/business-28212223
Bomey, N. (2016, August 25). Ex-pharma CEO Martin Shkreli defends EpiPen price increase. USA Today. Retrieved from https://www.usatoday.com/story/money/2016/08/25/martin-shkreli-heather-bresch-mylan-epipen/89334136/
Herper, M. (2017, February 10). Why did that drug price increase 6,000%? It’s the law. Forbes. Retrieved from https://www.forbes.com/sites/matthewherper/2017/02/10/a-6000-price-hike-should-give-drug-companies-a-disgusting-sense-of-deja-vu/#d14119471f51
Pearl, R. (2017, May 12). New checks and balances for big pharma. The Health Care Blog. Retrieved from http://thehealthcareblog.com/blog/2017/05/12/the-louisiana-purchase/
Sharfstein, J., Lee, J., & Conti, R. (2017, September 27). We have a cure for hepatitis C. But the neediest can’t afford it. Louisiana wants to change that. Vox. Retrieved from https://www.vox.com/science-and-health/2017/9/27/16350562/hepatitis-c-drug-prices-louisiana