The Real Cost of Profiteering of Life - Saving Drugs
QAREENA CHOUDHARY / AUGUST 06, 2022
A dissection of the underlying causes behind extortionate prices of prescription drugs and its ramifications.
ife-saving drugs can generally be defined as drugs that are crucial to sustain or prolong an individual’s life and are a necessity that patients cannot avoid at any cost. Unfortunately, this is not the case for a multitude of people who often skip or underuse their prescribed medicines due to the high out-of-pocket costs of these drugs.
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A report by the National Centre for Health Statistics highlights how adults skip medicines due to the debilitating financial strain borne by them. The survey, by NCHS researchers Robin A. Cohen and Maria A.Villarroel found that about 8% of adult Americans don’t take their medicines as prescribed because they can’t afford them. Among younger adults (those under age 65), 6% who had private insurance skipped medicines to save money. Among the poorest adults nearly 14% did not take medications as prescribed to save money. A report from the IQVIA Institute examining global medicine spending and usage trends reveals that global medicine expenditure is expected to reach USD 1.6 trillion by 2025. This expenditure is increasing at a rate of 3-6% per year.
Pictured: Illustration By Ly Ngo via Pinterest
Pharmaceutical companies avail government - sanctioned monopolies over the supply of various drugs. These monopolies are products of patents granted by the federal law to distinctive pioneering drugs.
So what are the factors contributing to this high-cost? Pharmaceutical companies avail government-sanctioned monopolies over the supply of various drugs. These monopolies are products of patents granted by the federal law to distinctive pioneering drugs. Patents are valid for 20 years, during which manufacturers are sanctioned to prevent competitors from selling the same drug on the market. Under these patent-enabled monopolies, companies are free to set any price for their novel drug. They often proceed to set prices that elicit a high profit margin even after covering high development costs. These profits are often higher than those of the 25 largest software companies.
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Patients have no choice but to purchase the drugs for the price that they are being sold due to lack of alternatives and the brand-new nature of these drugs in the market. In case of incurable ailments such as cancer, drugs are often used to prolong the individual’s life and manage the disease, however there is no competition that would eventually reduce the price as a multitude of drugs are used in a specific sequence to achieve this goal.
In theory, monopolies dissolve as the patent life concludes; however, due to practises like ever-greening, that is, by the time the patent life on a drug expires an ‘improved’ version has already been produced, with tweaks that may not make a significant difference to the health benefits availed by the older version of the drug but contain enough modifications to warrant a new patent—this grants companies a renewed market exclusivity.
Due to the characteristics of the monopoly market, pharmaceutical companies charge prices decided by them alone, that can be increased at any rate and any time. Most governments employ certain directives to limit soaring prices of new prescription drugs in an effort to protect citizens from unfair pricing policies caused by this nature of monopolies. However, an unregulated monopoly over indispensable products, such as in the United States, presents a major concern for citizens, as there are no policies regarding price control and no system to facilitate pricing of the drugs based on their therapeutic value.
Pharmaceutical companies often justify high drug prices and stand against drug price control by citing the importance of sustaining innovation and research, which cannot be done without extensive funding. Essentially, this claim is due to the need for financing research and devolopment costs as well as providing incentives for innovation of distinguished drugs for the future. However, there are many reasons to question the legitimacy of this claim. Drug development is an elaborate procedure involving an extensive investment of time and money. According to the figures listed in a cost report published by the Tufts Center for the Study of Drug Development, most new drugs take around 10-12 years from preliminary testing to final approval, for which the incurred R&D cost is estimated to be USD 2.6 billion for one drug.
However this number may be unreliable due to many different factors, one being that Tufts’ assertion cannot be verified, as they have deemed key data of their research as classified and confidential. Tufts also uses an interest rate of 10.5% per year instead of the conventional 6% interest rate used by bankers for their financial models. They don't factor in assistance and tax credits as well as funding provided by the Government to aid R&D costs either. Incorporating these factors alone would give a significantly different figure. Furthermore, a study conducted in 2017 by JAMA Internal Medicine, surveying R&D costs of 10 FDA-approved cancer drugs from 2006 to 2015,
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provided results vastly contrasting the Tufts’ results. They found the median R&D costs to amount to USD 757 million including capital, this was less than a third of Tufts' estimate. Of the drugs surveyed only two had research costs over USD 1 billion.
The above studies certainly highlight a disparity and a lack of transparency which probes the question of whether the nexus between drug prices and R&D costs is as inevitable and closely linked as pharmaceuticals claim. Moreover pharmaceutical companies also hold lobbying power which prevents any legislative or judicial action against price control. According to federal filings by Pharmaceutical Research & Manufacturers of America or PhRMA, the industry spent USD 27.5 million on lobbying against lowering drug prices in 2018, however OpenSecrets—an independent research group investigating money in US politics—revealed the actual figure to be USD 194.3 million, highly contrasting the figure filed by PhRMA.
It would be remiss to incriminate any one entity, as a combination of the aforementioned factors such as the free power granted by monopoly markets, the claim of R&D costs, and lobbying power of pharmaceuticals are all responsible for driving up the costs of prescription drugs to such preposterous figures.There are no straight forward solutions to fix the current problem of drug-pricing, however the following are some ways which may help in reducing the severity of the issue.
Current patent life is too drawn out; patent life should be limited to 10 years from initial entry into the market. Action needs to be taken to rectify the patent system and prevent patent abuse, companies engaging in such practises must be penalised.
Reducing patent life is fundamental to limiting the current pricing issue. Current patent life is too drawn out; patent life should be limited to 10 years from initial entry into the market. Action needs to be taken to rectify the patent system and prevent patent abuse, companies engaging in such practises must be penalised. Penalties should also be placed on companies engaging in ‘pay for delay’ schemes, where generic companies are paid to delay their market-entry. These measures will aid in revitalising generic and biosimilar competition, which is competition among drugs strongly resembling the structural composition of originally manufactured drugs.
Pictured: Drug by Thierry Fousse via Pinterest
Furthermore the approval process for generics and biosimilars must be streamlined. For biologic medications such as insulin, an exact replication of the product is impossible, therefore biosimilars are used. However the approval process for biosimilars is more complicated, unlike generics, biosimilars require clinical testing before approval. It is important to spread awareness about the safety of biosimilars among providers and public alike. Other barriers for the implementation of these drugs include, lack of trust among providers regarding the same and incentives and lawsuits by the
manufacturers of the original biologic to prevent market entry of biosimilars. An example of a successful biosimilar is in the case of Filgrastim for which there is a biosimilar adoption of 60% with cost discounts of 30-40%. Additionally the inception of non-profit generic manufacturing could assist in lowering prices. These non-profits can be undertaken by governments or philanthropic organisations. Civica Rx is one such organisation in the USA.
The urgent issue of high costs of drugs is quite convoluted, swarming with buzzwords and tactics used to deliberately conceal information. However, it is the public who have had to suffer the externalities borne by these prices. With the causes laid out it's clear that this conscious obfuscation and subsequent profiteering is a disease in and of itself, pervading households and imposing on individuals an impossible predicament between their life and destitution.
Keywords
Life-saving drugs, National Center for Health Statistics, Robin A. Cohen, Maria A. Villarroel patent-enabled monopolies, monopoly, drugs development, patent life, pharmaceutical companies, ever-greening
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References
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Blumenthal, D. (2018, May 24). It’s the Monopolies, Stupid! The Commonwealth Fund. https://www.commonwealthfund.org/blog/2018/its-monopolies-stupid
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Rajkumar, S. V. (2020, June 23). The high cost of prescription drugs: causes and solutions. Blood Cancer Journal, 10(71). https://doi.org/10.1038/s41408-020-0338-x
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Collier, R. (2013, June 11). Drug patents: the evergreening problem. CMAJ, 185(9), E385-E386. https://doi.org/10.1503/cmaj.109-4466
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Emanuel, E. J. (2019, March 23). Big Pharma’s Go-To Defense of Soaring Drug Prices Doesn’t Add Up. The Atlantic. https://www.theatlantic.com/health/archive/2019/03/drug-prices-high-cost-research-and-development/585253/
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The IQVIA Institute. (2021, April 28). Global Medicine Spending and Usage Trends: Outlook to 2025. IQVIA. https://www.iqvia.com/insights/the-iqvia-institute/reports/global-medicine-spending-and-usage-trends-outlook-to-2025
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LeWine, H. E. (2015, January 30). Millions of adults skip medications due to their high cost. Harvard Health Publishing. https://www.health.harvard.edu/blog/millions-skip-medications-due-to-their-high-cost-201501307673
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Sawicki, N., McAndrew, K., Sloan, S., & Moclair, K. (2020, April 9). Pointing Fingers: Why No Singular Entity Is to Blame for Rising Drug Costs. Brown Political Review. https://brownpoliticalreview.org/2020/04/pointing-fingers-why-no-singular-entity-is-to-blame-for-rising-drug-costs/#article-top
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Scutti, S. (2019, January 24). Big Pharma spends record millions on lobbying amid pressure to lower drug prices. CNN. https://edition.cnn.com/2019/01/23/health/phrma-lobbying-costs-bn/index.html
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