KEY TAKEAWAY: Accoring to the Economist, “EVERY year America spends about $5,000 more per person on health care than other rich countries do. With healthcare firms making excess profits of $65bn a year. Surprisingly, the worst offenders are not pharmaceutical firms, but an army of corporate healthcare middlemen”. However, the patient, stick in the middle of this debate, doesn’t care.
Our healthcare labyrinth comprises six layers with each layer taking a piece of the profit pie. As the Economist writes “Big pharma is still splurging on R&D but not making out like a bandit. As the drug industry has come back down to earth, the returns of the 46 middlemen on the list have soared. Fifteen years ago they accounted for a fifth of industry profits; now their share is 41%.
[inlinetweet prefix=”” tweeter=”” suffix=””]Health-insurance companies generate abnormally high returns, but so do the wholesalers, the benefit managers and the pharmacies[/inlinetweet]. [inlinetweet prefix=”” tweeter=”” suffix=””]In total middlemen capture $126 of excess profits a year per American, or about two-thirds of the whole industry’s excess profits.[/inlinetweet] Express Scripts earns billions while having less than $1bn of physical plants and no disclosed investment in R&D. This year the combined profits of three wholesalers that few outsiders have heard of are expected to exceed those of Starbucks.
The Economist makes a good point, but let’s ne honest, big pharma is not blameless.
1ne: “The recent, dramatic rise in drug prices is straining patient, health system, and societal resources . Drugs account for about 20 percent of the total costs of cancer care in the United States, but cancer drug costs are accelerating faster than costs for other components of care. Launch prices of cancer drugs in the United States have risen so steeply over the past few decades that they have quickly outpaced growth in household incomes. U.S. patients and their insurers are paying more than ever for cancer drugs—$54,100 for a year of life in 1995 compared with $207,000 in 2013. Unfortunately, there are no signs that this price escalation is slowing”
2wo: A 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.
3hree: A lot of drug company R&D spending has been replaced by acquisitions and mergers. According to Graham Robinson, a partner at Skadden, mergers and acquisitions in big pharma is “largely driven by the availability of attractive targets…many buyers have significant amounts of cash – and in some cases, a need to refill their sales force’s bags with new therapies” In 2015 there were 468 announced deals involving therapeutic drug assets, devices, diagnostics and insurance companies, according to data from Thomson Reuters, representing a 10% increase over 2014 and a 90% increase over 2012.
4our: A lot of drug companies are developing “me too” products just to get a slice of the profits.
Now the Economist is spot on that there are too many layers between the patient and treatment and insurance companies are making obscene profits but drug companies are not blameless. PhRMA has been using social media to try and deflect the blame of high drug prices, but the media has already zeroed in on pharma and some of the latest headlines seem to indicate that big pharma doesn’t really care.
For the patient who is paying more for prescriptions, and paying more for insurance it doesn’t matter. Pharma is still part of the problem and until they take concrete steps to ensure everyone can afford medications it’s going to get worse.