U.S. DRUG PRICES ARE A RIP-OFF
U.S. drug prices have long been a classic example of the corporate, profit maximization mentality that puts profits before people. The lack of regulation and antitrust enforcement in the face of ubiquitous anti-competitive strategies by the pharmaceutical industry have allowed this rip-off to go on for far too long with horrible effects on people’s health and financial well-being.
This is the eighth post in a series on how the U.S. health care system is a profit-driven system. The first post presented an overview of the for-profit U.S. health care system. The second and third ones focused on the role of the extreme capitalism of private equity firms. The fourth and fifth posts described large-scale vertical integration and the problems and illegal behavior that have occurred with it. The sixth post describes an example of the egregious illegal and unethical behavior that is all too common among nursing home operators. The seventh post highlighted how doctors are pushing back against health care for profits rather than for patients.
(Note: If you find my posts too long to read on occasion, please just skim the bolded portions. They present the key points I’m making. Thanks for reading my blog!)
Drug prices are far higher in the U.S. than in other well-off countries. Per person drug spending in the U.S. is over three times what it is in the Netherlands, Norway, and Sweden; it’s one and a half times what it is in Switzerland, the next highest among the nine high-income countries in this study. [1] This is largely due to higher prices and not other factors.
A recent and rather dramatic example of how high drug prices are in the U.S. is that the U.S. Food and Drug Administration (FDA) just allowed Florida to buy drugs in bulk from Canada for its public health programs including Medicaid and incarcerated people’s health care. It is estimated that this will save Florida $150 million a year! Eight other states have laws allowing state drug importation and have asked, or plan to ask, the FDA for approval for similar bulk purchasing plans. There is broad (80% in some polls) and bipartisan support for drug importation from Canada to reduce drug costs. [2]
Congress passed a law allowing drug importation 20 years ago but the federal government has delayed its implementation, supposedly because of safety concerns. However, in many cases, the drugs are from the same manufacturer, just sold through a Canadian distributor.
The pharmaceutical industry, through its lobbying organization, the Pharmaceutical Research and Manufacturers of America (PhRMA), has fiercely opposed drug importation and has sued multiple times to block bulk drug importation plans. It is expected to file a lawsuit to block, or at least delay, Florida’s program.
Some drug manufacturers have agreements with Canadian distributors that prevent the distributors from exporting their drugs to the U.S. The Canadian government has taken steps to block the exportation of drugs that are in short supply, as the U.S. market is, of course, much bigger than the Canadian market.
It is estimated that the pharmaceutical industry’s aggressive and sometimes illegal efforts to keep drug prices high and block competition cost U.S. consumers, insurers, and government health programs (i.e., taxpayers) at least $40 billion every year. [3] As a result, one of out every four Americans can’t afford their prescribed medications. [4]
A study by the American Economic Liberties Project and the Initiative for Medicines, Access, and Knowledge (I-MAK) identified ten illegal, anti-competitive strategies used by the pharmaceutical industry to inflate drug prices. Its examination of the 100 most-used drugs in Medicare and Medicaid in 2019 estimated that the programs’ costs for them were inflated by $15 billion (14%) and $3 billion (9%), respectively. These two public programs are responsible for 45% of drug expenditures in the U.S. Other drug purchasers paid $22 billion more for these drugs due to the illegal, anti-competitive practices of the pharmaceutical industry. For example, it was estimated that Medicare and Medicaid would have paid 50% less for insulin in the absence of illegal practices by the four major insulin manufacturers. [5]
The anti-competitive practices of the pharmaceutical industry include:
· Paying potential competitors not to sell generic alternatives to drugs,
· Patent fraud and abuse including false statements to the patent office and sham patent lawsuits,
· Fraudulent tactics to delay approval of a competing drug, often a generic alternative,
· Collusion among competitors to increase prices,
· Mergers, acquisitions, and monopolistic behavior, and
· Rebates to drug insurance plans to steer consumers to brand name drugs and away from cheaper generic drugs. (These rebates are indistinguishable from bribes or kickbacks.)
My next post will highlight some specific examples of these anti-competitive practices and will present some policy changes that would reduce these abuses.
[1] Sarnak, D. O., Squires, D., Kuzmak, G., & Bishop, S., Oct. 2017, “Paying for prescription drugs around the world: Why is the U.S. and outlier?” The Commonwealth Fund (https://www.commonwealthfund.org/sites/default/files/documents/___media_files_publications_issue_brief_2017_oct_sarnak_paying_for_rx_ib_v2.pdf)
[2] Jewett, C., & Stolberg, S. G., 1/6/24, “FDA issues first approval for mass drug imports to states from Canada,” The Boston Globe from The New York Times
[3] Johnson, J., 5/16/23, “Big Pharma’s ‘rampant corporate lawlessness’ cost Americans $40 billion in 2019: Report,” Common Dreams (https://www.commondreams.org/news/big-pharma-corporate-lawlessness)
[4] American Economic Liberties Project and the Initiative for Medicines, Access, and Knowledge, May 2023, “The costs of pharma cheating,” (https://www.economicliberties.us/wp-content/uploads/2023/05/AELP_052023_PharmaCheats_Report_FINAL.pdf)
[5] American Economic Liberties Project and the Initiative for Medicines, Access, and Knowledge, May 2023, see above