Pharma rakes in the money with price increases


  • At the start and halfway points of each year, many pharmaceutical companies raise drug prices to bolster revenue and reportedly fund new research.
  • A new STAT analysis of mid-year price hikes has found that, despite these new requirements, drug prices are on the rise. Indeed, on July 1, drugmakers raised the wholesale price on over 123 drugs in what’s the largest number of mid-year price hikes since 2013.
  • The median price increase for these drugs was 3.4%, just above the one-year inflation rate of 3.2%. So, over half of these medications could potentially face rebates, including 10 Pfizer drugs whose prices increased by 10%, such as long-acting penicillin Bicillin and blood thinner Fragmin.

PhRMA has been running its healthcare misinformation ad campaign suggesting that pharma companies need their profits to “fund research.” We know this is untrue per the many studies in medical journals and the tax cut money used to buyback stock.

I understand that pharma is a business, so they want to make money, but “how much is enough?”.

The Inflation Reduction Act took an essential step in that direction by giving Medicare the power to negotiate drug prices with pharmaceutical companies — an activity that Medicare has been explicitly barred from doing. The legislation also gives the government real leverage; if companies do not comply, they will face a substantial excise tax, or they can withdraw all of their drugs from coverage under Medicare and Medicaid. Pharma has decided that this violates a free market and is suing the government.

A standard line by the U.S. pharmaceutical industry — that price hikes are needed to fund research into new drugs — runs up against the fact that the federal government subsidizes a large portion of pharmaceutical research. Besides offering tax credits to drug companies and other industries that have conducted research and development since 1981, the lion’s share of basic research used by such companies is done through public institutions. According to the Los Angeles Times, while publicly funded research has led to innovations, drug companies have long prioritized developing minor variants on existing medications. Their funds are often directed towards sales and financial practices to boost shareholder payouts.

Drug prices in the United States are extreme. Many drugs cost more than $120,000 a year. A few are even closing in on $1 million. The Department of Health and Human Services estimates that Americans spent more than $460 billion on drugs—16.7 percent of total health-care spending—in 2016, the last year for which there are definitive data. On average, citizens of other wealthy countries spend 56 percent of what Americans spend on the same drug.

The most telling data on a disconnect between drug prices and research costs has received almost no public attention. 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 gain comes from the 100 or 200 brand-name drugs.

Drug companies tend to say they are unique in needing to spend a higher proportion of their capital on research than almost any other industry. But 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.

Pharmaceutical companies often claim that the research costs of unsuccessful drugs also have to be considered. After all, 90 percent of all medications that enter human testing fail. However, 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.

The 2017 JAMA Internal Medicine study incorporated all research costs on drugs not yet on the market into its final calculations. The pharmaceutical companies it examined had an average drug success rate of 23 percent, which the Tufts researchers argue is too high to accurately represent the amount of money that a failed drug would usually add to a company’s research costs. But cancer drugs, precisely,  have a success rate of 20 to 25 percent—so the selection of only successful companies does not seem to be the difference.

So, who is right? Just look at their stock price and CEO salary. When drugs like Lipitor became billion-dollar blockbusters, the pharma industry suddenly realized they could make much money. It’s going to continue to be about money, and patients be damned.