Drug pricing increases are disgraceful

SUMMARY:  (JAMA) The median drug wholesale list price (as defined by Average Wholesale Price) increased by 129% from 2010-2016, while median patient out-of-pocket costs increased by 53% and median insurance payments after rebates and discounts increased by 64%. Say goodbye to all the supposed goodwill.

The JAMA study goes on to say “this study’s findings suggest that, after adjusting for inflation, increases in drug list prices are associated with increased patient out-of-pocket costs, which may have implications for cost-related nonadherence, and insurer payments”.

High out-of-pocket drug costs can cause patients to skip treatment and worsen outcomes, and high insurer drug payments could increase premiums. Drug wholesale list prices have doubled in recent years. However, because of manufacturer discounts and rebates, the extent to which increases in wholesale list prices are associated with amounts paid by patients and insurers is poorly characterized.


This is an industry that doesn’t care about what people think of them. Pharma companies continue to be among the most profitable industries, even outperforming tech companies.

The Pharma Spin

Pharma continues to spin the lie about the high development costs of drugs but an analysis tells us the truth.

Excessive drug prices are the single biggest category of health-care overspending in the United States compared with Europe, well beyond high administrative costs or excessive use of CT and MRI scans. And unlike almost every other product, drug prices continue to rapidly rise over time. HHS estimates that over the next decade, drug prices will rise 6.3 percent each year, while other health-care costs will rise 5.5 percent. Basic economic principles suggest that drug prices should be going down, not up: For most drugs, manufacturing volumes are increasing, and little new research is being conducted on those already on the market.

Every time Congress debates doing something about drug prices, the industry—and the advocacy groups it funds—vociferously returns to the point that lower prices will thwart innovative research. The fear of missing a cure for Alzheimer’s or Lou Gehrig’s disease or depression contributes to stalling reform. But there are many reasons to question the widely held notion that high drug prices and innovative research are inextricably linked.

The most telling data on a disconnect between drug prices and research costs has received almost no public attention. Peter Bach, a researcher at Memorial Sloan Kettering, and his colleagues compared prices of the top 20 best-selling drugs in the United States to the prices in Europe and Canada. They found that the cumulative revenue from the price difference on just these 20 drugs more than covers all the drug research and development costs conducted by the 15 drug companies that make those drugs—and then some

To be more precise, after accounting for the costs of all research—about $80 billion a year—drug companies had $40 billion more from the top 20 drugs alone, all of which went straight to profits, not research. More excess profit comes from the next 100 or 200 brand-name drugs.

 Of all the companies in the world, the one that invests the most in research and development is not a drug company. It’s Amazon. The online retailer spends about $20 billion a year on R&D, despite being renowned for both low prices and low profits. Among the 25 worldwide companies that spend the most on research and development—all more than $5 billion a year—seven are pharmaceutical manufacturers, but eight are automobile or automobile-parts companies with profit margins under 10 percent. Amazon’s operating margin is under 5 percent. Meanwhile, the top 25 pharmaceutical companies reported a “healthy average operating margin of 22 percent” at the end of 2017, according to an analysis by GlobalData.

In November 2017, a study published in JAMA Internal Medicine examined the costs of developing 10 cancer drugs approved by the FDA from 2006 to 2015 and provided a strong contrast to the Tufts study from a year before. Its authors, from Memorial Sloan Kettering and the Oregon Health and Science University, used annual financial disclosures from the Securities and Exchange Commission for companies that had only one cancer drug approved but had on average three or four other drugs in development. They found that companies took an average of 7.3 years to win FDA approval, at a median cost of $648 million. Only two drugs had research costs over $1 billion. Adding in the cost of capital at 7 percent increased the median research and development cost to $757 million—less than a third of the Tufts estimate.

Pharmaceutical companies often claim that the research costs of unsuccessful drugs also have to be taken into account. After all, 90 percent of all drugs that enter human testing fail. But most of these failures occur early and at relatively low costs. About 40 percent of drugs fail in preliminary Phase I studies, which assess a drug’s safety in humans and typically cost just $25 million a drug. Of the drugs that clear this first phase of testing, about 70 percent fail during Phase II studies, which assess whether a drug does what it is supposed to do. The research costs of these studies are still relatively low compared with overall R&D costs—on average, under $60 million a study.

The Truth

Raymond Gilmartin, a former Merck CEO, once said to The Wall Street Journal: “The price of medicines is not determined by their research costs. Instead, it is determined by their value in preventing and treating disease.” In other words, pharma can charge whatever they want and get away with it to reward shareholders and CEOs.

It’s time for the Federal Government to negotiate drug prices directly with drug companies. PhRMA has spent tons of money to lobby against this but obviously, the drug companies don’t care that higher prices are leading to higher costs and poorer health outcomes.

Drug companies are wasting huge amounts of money. BMS, for example, has been sending SWAG to field people that amounts to hundreds of thousands of dollars. Do these people really need to be sent a giant chocolate chip cookie?

Then there are fleet cars which are sitting idle because of the pandemic. The cost of these cars is staggering yet the “spend it or lose it” attitude is still prevalent.

I just don’t understand how the drug industry could, in good conscience, continue to raise prices so much but then let’s be honest. They’re just another big business.