Bedside to Bankruptcy
The Battle for Pharmaceutical Drug Price Reduction
Figure 1: “Melinda Townsend-Breslin holds a photo [of her mother and her]…in the parking lot of a favorite thrift store in 2013 a year before her death.”
Aronczyk, Amanda. "Medical Bills Linger, Long After Cancer Treatment Ends." NPR. NPR, 27 Mar. 2015. Web. 28 Jan. 2016.
People fight battles in hopes of finding peace. Fifty-eight-year-old MaryLou Townsend, a pancreatic cancer patient, approached her will to fight following her diagnosis in much the same way. However, somewhere between the frantic trips to the OR and frequent chemotherapy treatments, the bills piled up. And while the insurance company covered charges in the plan, the plan did not cover everything. Amanda Aronczyk, writer and reporter at National Public Radio, recounts the family’s story of how finances affected MaryLou’s care. During her treatment, Townsend suffered from blood clots and her body did not respond to the standard medication. The alternative, outpatient medication ended up costing over $1000 a month and “had to be paid out of pocket” (Aronczyk). After Townsend’s death, her husband and daughter were left with around $100,000 in medical debt.
Millions of American families face the looming cloud of rising pharmaceutical drug prices that overshadow the benefits of treatment each year. The price of prescription drugs for terminal illnesses contributes largely to medical expenses that often leads to bankruptcy. In 49 out of 50 states, the leading cause of bankruptcy in 2014 was found to be medical debt (Stech). (Massachusetts was the only state in which, medical debt came in second to loss of income.) Pharmaceutical companies go unchecked as they set astronomical, arbitrary prices on medicines for diseases. Due to the Food and Drug Administration’s (FDA) lack of regulation over pharmaceutical drug prices, the corporations who market and sell the biomedical drugs make enormous profits through price spiking while their consumers are left scrambling to pay for them.
The pharmaceutical lens exists in terms of a high-risk, high-profit business. They are for-profit corporations, whose aim is to make money through a service. The drug development process begins with a concept for the betterment of quality of life from a certain disease. Ronald J. Vogel, PhD’s study discovers “making [an] investment in any 1 pharmaceutical is highly risky” (1206). Biomedical companies must invest in various sources and pathways when searching for an improved medication. While going down various paths of drug development and testing, some paths yield to successes, which will be approved, and others to failure. Then the conferences about pricing with respect to what the market can handle with nations and insurance companies begin. But if the service fee is too high, then it makes it difficult for them to sell their product. Conversely, if the service fee is too low, they cannot cover the expenses of research and manufacturing. The goal is a profit-driven price that the market can endure.
Pharmaceutical companies verify that even failed attempts cost money that must be included in cost analysis. They declare this as the reason for high research costs, and high overall prices. Recently PhRMA president and CEO, John Castellani, in a statement against presidential candidate Secretary Clinton, stated “her proposal [to lower costs] would turn back the clock on medical innovation and halt progress against diseases that patients fear most” (qtd. in Ferris). Stopping or limiting the cash influx into drug development investments may lead to a shortage of the required drug, a slower process of innovation, and by result more difficult access to the prescription of those drugs. The trial and error process is part of innovating and reaching new heights. Caps on insurance coverage or forced FDA negotiation is believed to “add to the cost pressures facing individuals” and their families, said AHIP CEO, Marilyn Tavenner (qtd. in Ferris). The threat of FDA regulation frightens pharmaceutical firms. In turn, they respond to pass on the price to consumers rather than swallow in slight decrease in profits. Castellani, similar to his colleagues in drug manufacturing, believe they must be compensated for all aspects of the development process while still making a profit. This will affect the patients primarily, and drug manufacturers claim this as their way of protecting the long-term business for patient satisfaction.
Patients who suffer from severe, long-term, life-threatening illnesses, like cancer or HIV, realize the large role money plays in treatment. Rather than focusing on fighting to live, patients worry themselves about fighting to “paying the bills—[and the family] paying the bills after [the patient is] gone” (Aronczyk). It’s not just a one-time payment. There’s a payment with every visit to the doctor and every time the prescription must be refilled. Now families are left with both emotional and financial stress. From researching cures, to manufacturing medications, to hospital shelves, to bedside care, the drug-shelving journey is a long one. However, the purpose of this long journey will be lost, if the destination is not in mind. Saving the patient is the primary purpose of research and drug production; outrageous prices detract from and hinder the ultimate goal. It may not seem like it when drug prices are set at the corporate level; however, the job description of biomedical companies is quite literally, to put a price on priceless human life. And right now, it is too high a price to pay.
Medical professionals agree that prescription drug rates can be outrageous. In an interview with NPR representative Nadia Whitehead, Dr. Ayalew Tefferi, M.D., hematologist at the Mayo Clinic, discloses that his patients actually cry at “these drug prices [that] are completely unsustainable…Pharmaceutical companies are in greed mode…[and] completely unregulated.” The current situation causes physicians to feel helpless as they administer treatment that may not be the most beneficial due to financial stress. Although inpatient care does not require the clinician to verify the expenses of treatments and procedures with their patients, it is difficult for doctors to see their patients giving up on certain medications or treatment plans or failing to follow through with them due to monetary issues. Many medical health professionals, including Dr. Tefferi, believe in active change beginning with the legislation of America’s healthcare policy.
America’s regulation of health policy began in 1984 with the Hatch-Waxman Act, more formally known as the Drug Price Competition and Patent Term Restoration Act. Its purpose encompasses the establishment of cheaper manufactured generic drugs by the pharmaceutical industry. The Act marks the first regulation on drug pricing. Clinical trials, studies, and research that are normally performed prior to FDA approval for new medications are no longer requirements for small-molecule drug equivalents with active properties similar to already licensed medications. Henry Grabowski, Professor Emeritus of economics and director of the Program in Pharmaceutical and Health Economics at Duke University, and his peers concluded that although the Hatch-Waxman Act successfully increased “the use of generics” and reduced “prices for several highly prescribed drug[s],” it did not provide enough incentive for pharmaceutical innovators (2158, 2164). The introduction of more generic brands increases competition between generic and brand name firms lowering prices through the free market. Congress set out to motivate the faster production of new medications with the influx of generics threatening the brand name corporations and to bring generic medications into the market faster. They only really accomplished the second goal because biomedical companies didn’t and still don’t respond well to regulation of the free market. As the first legislation to directly impact drug prices, it was a controversial act. The act decreases prices up to 80% (Grabowski 2157). This victory in price reduction was short-lived due to the patent period extension in response to the lack of innovation incentive for brand-name companies in the Hatch-Waxman Act.
Figure 2: Study by the Federal Trade Commision in 2002 explains the importance of patents for innovation.
Vogel, Ronald J. “Pharmaceutical Patents and Price Controls.” Clinical Therapeutics 24.7 (2002): 1204-1222. PubMed. Web. 30 Jan. 2016.
The United States increased its patent term to 20 years from the filing date, or 17 years from the issue date in 1995. The revision stands as a response to the Hatch-Waxman Act and the World Trade Organization’s (WHO) standards on intellectual property. The patent period extension provides innovation incentive for pharmaceutical companies by eliminating competing drugs equivalents in the market for lower rates. This permits them to set prices as they wish. According to a study conducted by Ronald J. Vogel, PhD, patent protection grants pharmaceutical companies “a period of above-normal profits for a technically [commercial] …product (1204). This adjustment results in delayed access to generic medications to consumers across the nation. It contradicts the purpose of the Hatch-Waxman Act, which creates market competition to lower costs sooner; instead the extension causes exclusivity resulting in higher prices for longer. Patents also act as a safeguard for biomedical companies, “because pharmaceuticals that are not derived from biotechnology can be imitated easily and inexpensively” (Vogel 1204). Without patents, the successes of today, would not be successes, according to many pharmaceutical representatives. It cushions and returns the development investment of new market drugs and the failed ones that did not reach the market. Biomedical firms often use this as an excuse for their skyscraper price tags, failing to mention their actual profit margins.
Figure 3: Chart displaying America’s large impact on pharmaceutical sales as of 2010.
Daemmerich, Arthur. “U.S. Healthcare Reform and the Pharmaceutical Market: Projections from Insitutional History.” Pharmaceuticals Policy and Law 15.3 (2013): 137-162. Academic Search Complete. Web. 30 Jan. 2016.
Vogel’s solution to exploitation of the patent law persists through individual countries using price control laws to keep tabs on corporations while “avoid[ing] the constraints of patent agreements [of WHO] without breaking [them] outright” (1204). And while many countries employ the services of these laws to keep prescription drugs inexpensively available, the United States does not. The United States government lets market competition determine individual medication rates, while it sets wholesale prices based on competing brand name drugs. In the event that there is minimal or no competition the FDA cannot set a wholesale price. This satiates pharmaceutical companies because the U.S. consumers endure as the primary source of profits. Arthur Daemmerich, Professor in the Dept. of History and Philosophy of Medicine at the University of Kansas Medical Center, discusses that the U.S. “provides the world’s largest and least restricted pharmaceutical market once the FDA approves a drug” (150). Biomedical firms thrive off of spiked U.S. prices while they are cemented in neck deep price caps in other nations. Compared to other nations, the U.S.’s policies are welcome gifts after drug approval. Without a regulating or negotiating body for pharmaceuticals, prices climb up to 16 times higher than their European or South American counterparts (Daemmerich 151). Currently, no alternative exists to the expensive, unique, life-saving medications that exist through today.
For years, the biomedical industry has been a monopoly of a few companies dominating various fields of medicinal drugs and equipment. Actavis just went through a “$70.5 billion takeover of Allergan” resulting in what economists called “Actavis’s rebirth as a branded and speaciality company” (Wieczner). It is an easy way for biomedical companies to reach different consumer demographics by branching into different fields. According to Fortune Magazine, economics since the millennium led to “the frenetic explosion of M&A [merger and acquisition] activity in the pharmaceutical sector” (Wieczner). Acquisitions keep the cash flow continuing and the revenues growing because companies with higher prices for their brand name drug determine the new prices. Just like most intentions of pharmaceutical firms, mergers are a money making scheme. Acquiring another company is an efficient and effective way of making money, because it is easier to acquire a patent-ready drug, than it is to recreate it. It creates a loophole in laws that protect intellectual property. And now the patent law gets extended because of a new company taking over, and there is no market competition to challenge prices. The amount of generics in the market, for unique medications that treat terminal illnesses is drastically lower. Therefore, patented medication down the line creates a monopoly of the industry with prices based on what the market can handle. Hence, generic medications cannot be available according to law and there’s no negotiating body to lower prices even with mergers constantly happening. What started as an innovation incentive for pharmaceutical firms by extending their copyright privileges, led to the precedent of manufacturer free reign that we know today. As a result, the modern world cascaded into a realm of expensive drug-therapy treatment programs as a by-product of multinational, pharmaceutical corporation greed.
The Center for Medicare & Medicaid Services (CMS) sets the standards for health insurance coverage and has insured Americans for over 50 years. Today, over 100 million Americans are insured through CMS making it the largest health care insurance corporation in the country. There are 4 different coverage plans Medicare A, B, C, and D. Parts A & B pertain to direct insurance coverage. According to a Patient-Driven Petition by Dr. Ayalew Tefferi and his colleagues, private insurance companies follow the CMS’s example to match national healthcare laws and standards inclusive of Medicare Part C. And Part D, aka Medicare Prescription Drug Benefit, was added in 2006 as an “effort to improve access to approved cancer drugs by requiring Medicare Part D to cover such drugs” (Tefferi 997). Medicare Part D contracts with private insurers who cover outpatient medications because Medicare Parts A and B don’t cover them. Medicare Part D is a selective privilege for those insured by CMS and only applies to certain medications; other insurance plans vary. The minimalism of outpatient drug coverage forces consumers to pay for those prescriptions out of pocket. The medications unique to certain diseases are often not covered as a part of Medicare Part D. It stands as the very reason MaryLou Townsend had to pay $1000 per month for her blood thinner.
Although the 2006 amendment aims to bridge the gap between consumers and out-of-pocket prescription payments, as of 2003 the “Medicare Prescription Drug, Improvement, and Modernization Act forbids Medicare [and the FDA] from negotiating drug prices” (Tefferi 997). The 2003 Act was not overturned when Medicare Part D was added as a part of the 2006 amendment. The overlap speaks to the contradiction of U.S. law on health care regulations. If neither the largest medical service provider in the country nor the standard regulatory body cannot negotiate drug prices, it grants pharmaceutical companies the leeway to sell drugs at the highest, consumable market value. Which brings forth the question, is price based off of expected investment return or bearable market value?
Companies are presently being investigated to explain how they got to the listed market price. Presidential candidates are also calling attention to this tear in our health care system, as they discuss their plans for healthcare, should they be elected. Congress can no longer debate this issue as if it is just another political debate on the extent of regulating a capitalist free market economy. Turing Pharmaceuticals, in September 2015, was caught in a controversy that they had increased the cost of Antiretroviral pills (AIDS drug) by more than 5000 percent overnight. After much public scrutiny and national media coverage, the CEO stated that they would “mull over the decision to reduce prices,” but no doubt, intentionally failed to mention how (Harven). In December of last year, Pfizer, one of the largest multinational, pharmaceutical corporations, set the price for a new breast cancer drug at $9850 per month. According to Jonathan Rockoff, writer for The Wall Street Journal, Pfizer sits down with their staffers, doctors, and insurers; however, he makes it obvious that Pfizer calls the shots because they have leverage. Using the expensive research as leverage goes beyond moral boundaries. The poorly documented journey of how Pfizer reached its price tag finally has U.S. Congress rallying for its citizens. A Senate committee is having a hearing on drug prices that started in December 2015 and will restart when Congress reconvenes for the New Year with the hopes for new legislation on regulating drug prices (Rockoff). After decades of arbitrary prices, the fight for fair market, consumer driven rates is taking root.
Pharmaceutical companies have lost touch with the needs of people suffering from illness. They believe themselves to be primarily saving lives, when in reality their exorbitant prices hinder the safety of lives. Manufacturers set themselves apart from “the patient-driven grassroots movement” for more affordable healthcare and outpatient drugs” (Tefferi). And the contradictions and uncertainties in United States laws pose as a clear indication of the source of discrepancy. Meanwhile, Congress does little to nothing to interfere in free-market competition as an avenue to lower drug prices. Neither Medicare Insurance nor the FDA is allowed to negotiate or regulate drug prices. While the FDA can approve the biologics of a drug, they can neither “review…or propose a fair price” nor can they “distinguish the amount of improvement from a new drug to its predecessor” (Tefferi). Some marketed drugs may not improve quality of life, but they increase life span with a life-threatening disease by a few weeks. This costs significantly more, but a price is again put on length of human life. These are the kinds of medications that are bankrupting our health care system.
Even with the lack of regulation, safety nets like patents shield pharmaceutical companies from competition thereby eliminating the natural process of price reduction through supply and demand economics. Ronald J. Vogel, PhD, professor at the College of Pharmacy at the University of Arizona, Tucson, reminds that R&D is an expensive and risky process for the pharmaceutical industry (1220). While this may be true, the $300 billion dollar, international industry, with a profit margin averaging 30% doesn’t seem to be doing too badly, when it comes to finances and funding future research (WHO). Without regulations, health care will either become too expensive for common man or cease to exist altogether. And while dealing with any other industry, the high risk-high profit game is not as dire or bittersweet. The risk of failure is high in the biomedical industry because one person’s gain is directly correlated with another’s loss—loss of life that is.
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