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The bitter pill of prescription drug prices

Americans pay more than other nations for the same drugs

Created date

November 23rd, 2015
prescription drug prices graphic
prescription drug prices graphic

In September of 2015, the cost of Daraprim, a prescription drug used by cancer and AIDS patients, went from $13.50 per pill to $750 per pill overnight. The over 5,000% price increase made headlines around the world. Martin Shkreli, CEO of Turing Pharmaceuticals, which makes the drug, said the price hike was necessary for the company to make a profit. 

The company and its brash CEO quickly became the face of pharmaceutical industry greed, and everyone, from doctors to politicians, expressed outrage over the company’s seemingly blatant disregard for the greater good.

Outrage from all corners

Democratic Presidential candidate Hillary Clinton tweeted, “Price gouging like this in the specialty drug market is outrageous.” 

When asked about Shkreli, Republican Presidential candidate Donald Trump said, “He looks like a spoiled brat to me. He’s a hedge fund guy. I thought it was disgusting what he did.”

Even trade groups distanced themselves from Turning. John Castellani, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), issued a statement saying, “Turing Pharmaceuticals is not a member of PhRMA and we do not embrace either their recent actions or the conduct of their CEO.”

In an open letter to Turing posted on their website, physicians from The Infectious Diseases Society of America said, “This cost is unjustifiable for the medically vulnerable patient population in need of this medication and unsustainable for the health care system.”

Manufacturers set the price

In light of all the bad publicity, Turing Pharmaceuticals backed away from the price hike, saying it would establish a price that will make the drug more affordable while at the same time allow the company to make a small profit. It also said that it has established a program to help those who need the drug but cannot afford it. 

While the price increase certainly didn’t earn the company or its CEO many fans, what it did was entirely legal. This story illuminates one of the most glaring issues in health care today. The United States is one of the few countries where the price of prescription medicine is set entirely by the manufacturer. 

Medicare Modernization Act

In 2003, the U.S. Congress passed the Medicare Modernization Act (MMA). It established an entitlement program for prescription drugs. It also prohibited the federal government from negotiating discounts with drug companies and from establishing a formulary (a list of preferred drugs based on safety and cost-effectiveness).

Passing the MMA was a hard fought and divisive battle. Twelve years later, the prescription drug program, better known as Medicare Part D, is relied on by millions of older Americans. 

At the same time, the other parts of the law, specifically the parts that allow drug makers to have complete control over the cost and distribution of their products, have not benefitted the American public in the same way. The MMA erased the vast purchasing power the federal government would have in negotiating with drug companies for lower prices. 

Not surprisingly, the MMA was heavily lobbied for by the pharmaceutical industry, and many of the key lawmakers who ushered the bill through Congress went on to work for the pharmaceutical industry. 

Rising costs

While 5,000% price increases are unusual, with each passing year, the cost of prescription drugs—even drugs that have been in the marketplace for decades—continues to increase, often without warning or explanation. Generic drugs offer people a considerable savings, but even the cost of generics has been steadily increasing.

The International Federation of Health Plans (IFHP) released a study comparing how much drugs cost in different countries. It showed that Americans pay two to six times more for brand name prescriptions than other nations. 

For example, the cancer drug Gleevec is about $989 in New Zealand. The U.S. price averages $6,214. Cymbalta, a drug used to treat depression, costs less than $100 in Switzerland, Spain, the Netherlands, and England. It costs $110 in Canada and $194 in the United States. The price of the acid reflux drug Nexium ranges from $23 in the Netherlands to $215 here at home.

“We have looked here at a number of products which are identical across the markets surveyed,” says IFHP’s chief executive Tom Sackville. “The price variations bear no relation to health outcomes: they merely demonstrate the relative ability of providers to profiteer at the expense of patients, and in some cases, reflect a damaging degree of market failure.”

Americans pay too much

The majority of Americans believe they are paying too much. A recent survey by the Kaiser Family Foundation found that 72% of Americans say the cost of prescription drugs is unreasonable. Similarly, 73% believe that drug companies make too much profit, and 74% say those companies are too concerned about profits and not concerned enough about patients.

When it comes to a solution, 76% support limiting how much drug companies can charge for high-cost drugs for illnesses such as hepatitis or cancer, and 83% support allowing the government to negotiate with drug companies to lower prices for people with Medicare. 

If nothing else, the blaring headlines and subsequent publicity generated by Turing Pharmaceuticals has brought this issue to the forefront. As the campaign season heats up, it will be up to the candidates to put forth solutions to this growing problem.