Pharmaceutical pricing seems to be the “black box” of the healthcare industry. No one, it seems, quite understands how our drugs are priced or what drives their pricing. We do know some rather strange, often troubling phenomena in regard to pharmaceutical pricing. So, who is overseeing our drug prices?
For example, if we fill a prescription in Buffalo, New York, it is one price. If we get on a bus in Buffalo and cross the border into Canada to get it filled, it may be a fraction of the cost for the same drug, same dosage. We know that under the guise of supporting their R&D costs, Big Pharma may rake in profits of 1,200% or more on certain drugs without so much as a shrug from the Federal Trade Commission. We know that the so-called relief on drug pricing is often misleading, perhaps a one-time only deal as an inducement to make us want to go back and pay an exorbitant amount for the refill. Most recently, we know that for 2019 nearly 40 pharmaceutical companies across the U.S. have raised their drug prices.
Embarrassed?
As the companies have raised their prices, hitting up against Congress who is demanding that pharmaceutical companies make their products more affordable, the CEO of Merck, Kenneth Frazier said: “We want to work with the administration and Congress, both parties, to ensure that patients can have meaningful access to drugs – and affordability is a real problem. The question is, how do we solve the affordability problem for today’s patients without creating a problem in terms of developing the new drugs for Alzheimer’s and other things that tomorrow’s patients need from this industry.”
Congress and the president have put forth a pricing model that they believe will lower drug costs to bring them in line with what patients are paying in other countries. It makes sense. Why is there such a pricing disparity, even if we adjust for local currencies? However, the drug companies keep pushing back by saying that to reign pricing in as the government suggests might destroy the health care system as we know it, not to mention that lower prices will affect new product development.
In what almost seems an embarrassed defense of their product pricing, the Merck CEO stated:
“What would work in this country, in my opinion, are market-based solutions. Greater availability, for example, of generic drugs, including biosimilar would lower the cost of drugs tremendously. Changing the value-based systems for payment to ensure we’re only paying for whatever in health care is actually providing value – those are the kind of solutions.”
However, it is what Frazier didn’t say is that is ethically troubling to me, starting with his last statement in regard to “paying in health care what is actually providing value.” The statement is a bit nebulous. Does he imply that alternative or natural therapies do not provide value? Does he believe, for example, that a generic anti-depressant has more value than psychiatric or psychological out-patient care?
Regarding the generic drugs that Frazier appears to favor, it is easy to understand that when many companies can make them when their exclusivity goes away, they essentially become “commodities,” or even a type of loss leader. Groceries do not make big profits on canned Pinto beans, they make it on flowers, or the cheese section or gourmet food items such as the olive bar.
When Merck came out with the above statements, Pfizer also announced that they were raising prices in 2019, but only on 10% of their products. The other 90% they assure us will hold their pricing. It sounds somewhat noble, but if the majority of those products are essentially generic or in a highly competitive space, then they undoubtedly realize the real opportunities are in the products for which it holds exclusivity or licenses or a predominant market share.
Pfizer is the second largest pharmaceutical company in the U.S. but ranks the first in terms of prescription drugs and vaccines. They had 2017 revenues in excess of $52 billion. They also have a consumer products division where drugs are sold over-the-counter. It is difficult to pinpoint the drugs that are part of the 90% versus the must-have drugs that comprise 10%.
Where are the ethical considerations?
The pharmaceutical companies say they want to see more of the rebate dollars for expensive drugs going to the consumer rather than the chain pharmacies, and while that makes a degree of sense, we must take what they say with a grain of aspirin. It is the pharmacies and the physicians who are often induced to carry or prescribe certain medications, not the consumer. No drug reps come to our house to offer us World Series tickets or bonuses, they do call on pharmacy chains and doctors.
Pharmaceutical companies may rationalize their high prices and exorbitant profits on the basis of their huge research expenses. And while I realize research is vital, I do note that Pfizer’s R&D costs were $7 billion of the $52 billion in revenues. How much of the remaining $45 billion is used to induce pharmacies and physicians?
Until there is ethical transparency in the pharmaceutical industry, I would suggest their needs to be both greater government and consumer advocacy. Begs the question, who is overseeing our drug prices?
