Well ... kind of.
One of the few things that the two parties seem to agree on
is that the pharmaceutical industry in the United States has become too powerful.
Ten companies accounted for half of all the profits
in the health care sector last year.
Nine of them were drug manufacturers.
Over the last decade, prescription drug prices have soared.
According to the Department of Health and Human Services,
Americans spent almost $460 billion on prescription drugs in 2015.
So we are, by far and away, the most expensive country
when you go to buy prescription drugs.
For most drugs, we pay about three to four times more
than what other countries pay for identical brand name drugs,
which are the drugs that have patents.
For drugs that don't have patents, which are called generic drugs,
we pay about the same as most other countries.
So, why is Big Pharma so, well, big?
Martin Shkreli became infamous after he raised the price
of a lifesaving drug by 5,000%.
In defending his decision, he said,
You know, this is a
I mean, he wasn't exactly wrong.
There's one fundamental reason for why drugs are so expensive in the United States.
In the United States, there's nobody saying that you can't raise your prices.
And if you want to raise your prices, you can.
You just assume that you'll get the business.
And in most cases you do, because people need their drugs
and they're willing to pay a much higher price.
In most countries, there are regulations to try to keep the prices down.
In the United States we don't have those same regulations.
So, this freedom that U.S. pharma companies have
to dictate how much they want to charge
has exactly the kind of consequence you think it would have:
prices can get
Take pharma company Mylan, for example.
Between 2013 and 2014,
Mylan increased the price of Albuterol, which is used to treat asthma,
from $11 to $434.
That's almost 40 times higher.
They also increased the price of a drug called Doxycycline Hyclate,
which is prescribed to treat all kinds of infections.
It rose from $27 to $1,849.
Let me do the math for you: That’s almost 70 times more.
As expected, this price fluctuation impacts Americans.
About one in five Americans reports that they have not
filled a prescription, or taken a reduced dose
relative to what they were prescribed, or skipped doses,
because of concerns about affording their medications.
One in eight American adults reported this year
that they have reduced the amount
that they spend on food in order to afford their medications.
For a while, the pharmaceutical industry was able to avoid
direct confrontation with Congress over prices
because, like other sectors in the United States,
Big Pharma lobbies, and it lobbies hard.
Back in 2017, President Trump said this:
They contribute massive amounts of money to political people.
I don’t know, Mitch [McConnell], maybe even to you.
We know that the pharmaceutical industry has always
invested very heavily in lobbying.
They are the top industry in lobbying and have been for many years.
They are equal opportunity givers.
They give to people on both sides of the political aisle, democrats and republicans.
So, you know, a sort of political realist view is that
there are lots of folks in Congress who are beholden to this industry.
Oh, and if you’re wondering ...
Trump was also right about Big Pharma donating to Mitch McConnell.
The senator received almost $1 million
from the pharmaceutical and health product industry between 2013 and 2018.
And as if the health care system wasn't complicated enough,
there are other players involved in the drug-pricing system.
Let me introduce you to
Back in the 1960s, we didn't provide drug benefiats to most people,
and the private insurers, which provided most of the insurance at the time,
didn't know how to do drug benefits. So they didn't want to get involved.
So they decided that they would have a separate company provide the drug benefits.
And these were called pharmacy benefit managers, or PBMs.
They were created to negotiate prices
with the drug companies on behalf of the health insurers.
Today, PBMs not only negotiate prescription drug prices
for more than 266 million Americans,
they also determine which medications are available to consumers.
their purpose, is to reduce prescription drug costs
for consumers, employers and insurers.
But, it turns out, there's very little transparency
and a whole lot of confusion about how PBMs operate,
which impacts the final price of a drug.
Insurance companies hire PBMs to negotiate prices with drug manufacturers.
Now, the drug manufacturers pay what we call rebates to PBMs.
Rebates are discounts pharma companies give PBMs on medication
in exchange for getting priority placement on a formulary. This is a list of drugs
that insurers agree to help cover.
Manufacturers that offer bigger rebates for their drugs
also tend to get better market access, so Americans are more likely to choose them.
But are they really cheaper?
This is where it gets really murky.
Most of the rebate goes to PBMs and insurers,
who say it helps them keep premiums and out-of-pocket costs low.
One research firm estimated insurers received $89 billion in rebates in 2016.
It's unclear how much PBMs got because there is little to no transparency.
Because PBM discounts are usually hidden,
some argue insurers overcharge their patients for medication.
According to research, the problem is that some consumers might pay
based on the original list price of a drug, not the cost after the rebate.
Imagine a drug manufacturer lists a prescription medication
as $100 but offers it to PBMs for $60.
If a patient's coinsurance payment was 20%
and they paid on the discounted price of $60,
their out-of-pocket cost would be $12.
But instead,
because they pay based on the
the original list price of $100,
their out-of-pocket expense jumps to $20.
Drug companies say they have to raise the list price of their drugs
to stay profitable and offer sizable rebates to PBMs.
And critics accuse PBMs of wanting to keep list prices high
so they can reap a bigger profit.
But PBMs and insurers vehemently disagree.
They argue their practices have saved consumers money
and keep drug prices in check.
See, I told you it’s complicated.
That's why the secretary of health and human services has targeted PBMs
saying it may be necessary to move away from a rebate system altogether.
Drug companies have also found a way to game the patent system,
initially set in place to protect and reward innovation.
The important thing to understand about price is that price depends on
the amount of competition in the market.
It doesn't depend per se on whether a company
has a patent or doesn't have a patent.
But having a patent can of course affect the amount
of competition in the market.
So in the worst case scenario, a company has a patent on their drugs
and that not only means there's no generic competitors,
but it also means they are first in class.
There's not another branded or patented medication out there that’s
competing with that patented medication.
So what you have there is a situation where you've got exclusive rights
to sell essentially for an entire class of medication.
And if people want drugs for that condition,
they've got to buy your product at the price that you want.
In February 2019, leaders of seven major pharmaceutical companies
were grilled by a bipartisan Senate committee on rising drug costs.
That marked a significant turning point in Congress' traditionally
cozy relationship with the pharma industry.
During that hearing, pharma companies justified
the high price tags by blaming PBMs.
They also spoke about the innovation of new drugs.
The primary justification that the drug companies offer
is their enormous investment in research and development for new drugs
and the high failure rate of those efforts.
When you consider the fact that eight or nine out of every 10 molecules
that they put into the development pipeline fails, it never makes it to market,
they'll argue, we need to have a big return on our investment
in the one that does. It has to cover our costs for all the failures.
So the exact amount that they spend on research and development
is disputed.
But studies have put it as high as $2.6 billion
for each new drug that reaches market
when you consider what they invested in the failure drugs
and the opportunity cost associated with not investing that capital
in other investments.
But critics haven't fully bought into that argument.
I think one observation people have made is that, you know,
a rational drug company, and these are very sophisticated entities,
should set the launch price of that drug at a level that is reasonably calculated
to give it a return on investment.
So that argument doesn't explain the instances we've seen of escalations in price
year after year that are well above inflation.
You know, the [research and development] is done.
Why is it that the initial price now is somehow too low and you have to increase it
The other thing that people will point out is that drug companies,
by some calculations, spend more on marketing their drugs
than they do on research and development.
So to come crying poverty when you are spending lavishly
on aggressive promotion of drugs, and doing very well in terms of margins,
can be hard for some to hear.
So, if drug manufacturers have managed to hold off Congress
and any major industry reforms for so long,
what's changing exactly?
Answer: an increasingly outraged public.
A 2018 poll found that 72% of respondents felt
pharmaceutical companies have “too much influence.”
What's changing in the last few years is the profits
of the pharmaceutical industry have grown dramatically,
the profits of the PBM industry have grown dramatically,
but the consumer has to end up paying much higher prices
and drug prices have become, in health care,
the No. 1 policy issue in the United States.
The outrage has prompted Democrats and Republicans to realize
that Big Pharma is going to be a major 2020 campaign issue.
While there seems to be bipartisan consensus that drug prices need to be lowered,
the parties disagree on the best way to make that happen.
So the Democrats would prefer to do negotiation,
having the government directly involved,
whereas the Republicans want to push more and more competition,
to bring drugs to the market faster, to have more generic drugs in the market.
So they have different approaches
but they seem to be agreeing now on some combination
of having more government oversight and more government regulation
but at the same time promoting competition.
And for some, that may just be the best way forward.
I think there have to be stronger policies that put the brakes on the system,
that regulate drug companies’ ability to set very high launch prices
and to increase them year after year.
Another thing that would be very fruitful to pursue
are policies that improve competition in the marketplace.
Because we see instances of companies getting patents
that they perhaps shouldn't have,
gaming our regulatory programs to get additional market exclusivity,
buying up companies that are bringing up
potentially competitive products, and a variety of other anti-competitive practices.
You know, it's really a situation where regardless of
whether you're a Democrat that might be pro-regulation
or a Republican who’s pro-market,
you should like policies that make it possible to have robust competition.
And there are a lot of things we could do.