IN RECENT DAYS, more and more Americans have learned about the young CEO of a drug company, Turing Pharmaceuticals, who purchased an orphan drug called Daraprim and, overnight, raised the price (to consumers) of each pill from US$13.50 to US$750 (that’s over a 5,500% increase). The press interviewed Martin Shkreli, Twitter and Facebook blew up with anti-Shkreli posts. As the internet will do, it even gave him a particularly disparaging moniker – “Pharmaboy”.
A number of questions surround this increase. A number of questions also surround our society’s scale of response – from the individual to the Press – to this news of Turing’s overnight price hike.
Why are we so annoyed by this development, when so many other egregious examples of pharma megaprofits exist?
According Dr. Sanjay Gupta, Mr. Shkreli is embarking on a new way to raise investment capital for drug development. Shkreli claimed that Daraprim could be improved upon, and therefore, the profits from the increased price would be rolled into the investment of new drugs.
The usual model of drug development, we are told, involves identification of a promising market, and a company (especially a new biotech company) raising venture capital. When asked by CNBC correspondent why his company did not go this route, Shkreli claimed that they had, in fact, raised a record-breaking US$90 million in venture capital.
(I can’t help but wonder if he can see that this point does not really help his case.)
I’ve done just a little research in this area, for my upcoming book “Cures vs. Profits” (World Scientific), and Dr. Gupta’s explanation seems to me more than a little off. I recall from my research on how pharmaceutical companies either try, or do not try, to strike a balance between profit pressures and the need to bring forward the most effective treatments. I wrote “Cures” in part in response to friends & family’s many questions about the medical industry, and the practice of medicine, including the rather blunt questions like “Tell us the truth, doctors don’t want cures – they want treatments, right, because they get more profit”.
Dr. Gupta is right that Mr. Shkreli”s brazen use of zero-risk price gauging irks us because he is trying to profit by an amount that most Americans feel is exhorbitant, and undeserved, for a number of reasons, such as:
There is no real risk on his part, the part of the company, or in investors. We do not like it when people get something for nothing.
We really, really don’t like it when people get something for nothing on the backs of other people in a way that we feel is unfair. We all know that when other cannot afford live-saving medicine, the buck is passed to the rest of us – either through increased insurance premiums, or via our taxes. Sure, companies have compassion programs, where they will provide treatments or test to some individual who are in need. But that raises the question – why increase the price in the first place, and put us all through this smoke and mirrors session?
HIV patients need this drug especially; given that there is no cure for HIV, he has a captive, long-term source of profit.
In contrast, Dr. Gupta’s claim that Mr. Shkreli is trying out a “new” way of raising capital for drug development is wrong in one extremely important detail.
It is not – by a long shot – new.
While being interviewed on CNBC, Mr. Shkreli himself provided a hint at a “everyone else is doing it” rationalization for his specific decisions. He said:
“We actually feel that this is a more appropriate price for Daraprim, uh
at this price Daraprim is still actually at the low end of what orphan drugs cost. We’re certainly not the first drug company to raise drug prices.“
“Cures” is currently being copy edited. At the risk of spoilers, I am sharing an extended excerpt from the Preface. Because, well, Mr. Shkreli is correct, in a very big way, that Turing is not the first company to raise drug prices. Nor is Turing the first company to commit price gauging.
A friend of mine recently asked me “Doesn’t the free market correct for price gauging?”
To help understand the scope of the reveal by Daraprim missed by the media, I share here an extended excerpt from the Preface of my book. It contains some answers to these questions. WARNING: THIS MAY LEAVE YOU WITH THE IMPRESSION THAT I AM ANTI-CORPORATE, OR EVEN AN ANTI-VAXXER COMMUNIST. I assure you I am not. There are many, many companies and medical doctors doing the right thing. The very good news is that most of the rest of “Cures” deals with what I consider bona fide good news on successes in translational research by some really great people whom I hope achieve great personal wealth from their discoveries – because they have imbued a deep sense of moralism into their business models.
That said, here’s your dose of medicine on why Dr. Gupta is incorrect.
From: “Cures vs. Profits: Successes in Translational Research”, World Scientific (2015?)
I have no particular agenda for this book other than to hopefully open up a dialog among all stakeholders in medicine with an eye on the positive. From the patient to the CEO, my goal to help bring about changes in our practices and policies that might lead to a larger number of effective and safe medical treatment options for doctors and patients to choose from, thus reducing death due to disease. Most importantly to me personally, these options should reduce human pain and suffering.
For some authors, it may be tempting to partake in the non-scientific near hysteria of people questioning the validity of western medicine. A counterculture exists in which suspicion, rumor, and idle speculation fuel the fans of discontent. If I were to write a book in that vein, I could expect disdain from my colleagues, whose esteem I hold dear… but I would expect to sell more books. No, this is no anti-medicine, anti-science book, either. It is instead an attempt to scrutinize objectively, and explain in simple, understanding terms, a number of important topics in medical research that I believe deserve a wider audience. For each topic, I began my research with an open mind. If, after my research, I have formulated an opinion, one way or the other, on a given topic, I say so. If I have formulated a conclusion, I make it clear. Where I have not, I call for more research.
Each individual medical doctor has taken the Hippocratic oath, by which they pledged to “First, do no harm”. Violations of this oath occur on a regular basis. Via this oath and in our placing our lives, and our children’s lives, in their hands, medical doctors share a sacred social contract with the rest of humanity. We place our esteem in them, we give them influence on social matters and public health matters, and we bestow upon them great wealth. While many doctors deserve the respect, social status, and wealth that come with their position, those guilty of egregious instances of abuse should be tried, and if convicted, sentenced.
Many Americans believe that for some doctors, the Hippocratic Oath is often made with some qualifiers in fine print, such as “First, do not harm (to profit)”. It is not hard to see why; medicine is projected to become a trillion dollar industry worldwide (Perkowski, 2014). The US is only one of two countries that permit, by law, direct-to-consumer marketing of pharmaceuticals (the other is New Zealand).
This book is not about heroes in medicine. That said, some rough estimates of lives saved by advances in specific medical practices and procedures paint the picture of medicine in a more beautiful palette. The website Science Heroes, for example (www.scienceheroes.com) reports that blood transfusions are estimated to have saved over 1 billion people. Their list goes on to report 109 medical heroes, estimated to have billions of lives saved. (The website is a companion to the book “Scientists Greater than Einstein” (Woodward et al., 2009; Quill Driver Books)).
So where does the concern over undue profits fit in? While it is true that we are all treated with options that, from a pharmaceutical corporation’s standpoint, were deemed potentially profitable, is this a mere fact of reality, or something else? Regardless of the nuances of motive, it means that many potentially effective drugs have not been brought to market. Why? Profitability is certainly a filter that has a homogenizing effect on medicine: Our treatment options are much more limited than they could be. This seems to be a perfectly acceptable norm to many.
On April 1, 2015, Anne De Groot, CEO of EpiVax, testified before the Blue Ribbon Study Panel on Biodefense at the Hudson Institute in Washington, D.C. Her focus was the need to prioritize innovative, nimble, responsive ways for solving existing and new biothreats.
Former HHS Secretary Donna Shalala was commented to the problems of balancing innovation and manufacturing at large capacities:
Sec. Shalala: “It’s one of those fundamental questions of what should government be doing, and when does it profit share. We’re talking about vaccines where the margins are smaller than other drugs.”
DeGroot:“We have also been able to look at existing vaccines and say ‘Wait a minute, we don’t think this is a good idea’. There should be a place for us to say that where it’s going to be heard. And really, there’s no one I can talk to. My experience during H1N1 and during H7N9 is that the CDC doesn’t want to hear that. People do not want to hear that the vaccines that the vaccines that they are going to make (are not going to work). The H7N9 vaccine that we have today is the least effective vaccine that’s ever been made… We told you that in 2013 when sequence (of the virus) was published. We published a paper that the virus was a stealth virus, that new vaccines would be ineffective. Less than ten months later, we were proven right.”
C-SPAN2 recorded a stream of the proceedings. Another CEO, Daniel Abdun-Nabi, of Emergent BioSolutions, also testified for the need to find a way to fund small companies like DeGroot’s to be innovative, but offered that “she’s not going to manufacture”. According to a report in American Progress, Emergent BioSolutions received some $1.3 billion from the U.S. government to produce an anthrax vaccine, which cost them only $250 million to manufacture the vaccine doses.
The contrast was between EpiVax’s focus and the focus of Emergent BioSolutions of the Blue Ribbon Panel was stark. EpiVax wants to reduce roadblocks and cost so the overall approach can be safe and effective. They are extremely good at predicting whether specific vaccines will likely be effective on emerging infectious diseases. In some ways, they are way out ahead of the pack. In reality, they are one step behind. By the time the complete their analyses in response to a threat, the big wheel of status quo has already started turning, and their input is seen as a distraction. This does not need to be so, of course. The big wheel could easily absorb a priori checks on the computed fit between antigen and antibodies, given the sequence, as first-step screen for existing vaccines likely to (or not to) work. The panel seemed focused on the status quo; Gov. Ridge discussed how government has “always worked this way” and both he and Sec. Shalala acknowledge the need for some type of reform. They seemed to want somehow to keep the old system in place and add EpiVax’s ideas to the established large-contract process.
After the testimony concluded, while the Blue Ribbon panelists were not aware, a microphone was left open, which captured the conversation former HHS Secretary Donna Shalala and Gov. Tom Ridge.
Secretary Shalala:”He (Daniel Abdun-Nabi) is making a fortune over there (at Emergent BioSolutions CEO). He’s figured out how to do it. She has not figured out a way to do that yet.”
Gov. Ridge: “That was my take-away exactly.”
Whatever profit model is in play that would transform $250 million investment into over $1 billion profit seems par for the course. For others, such outcomes appear to be a necessary evil, but this is partly because we lack an obvious alternative means by which corporations can bring effective products forward. As health care costs skyrocket, and Americans are asked to pay for their mandatory healthcare insurance or face a fee, one wonders how the Ebola crisis might have been handled if even ½ of those $1 billion went into the development of a vaccine.
The design of clinical trials is a key to success in medical research. As dry as that topic may be, it also part of the answer to why so few drugs are available to us. It is how medical research is done. Thus, the public should learn some details of how clinical trials are conducted. They should also learn of the limitations that are inherent to clinical trials, and find out whether alternatives to the gold standard might improve rates of discovery and translation, and if so, how. I, and many of my colleagues in research, would like to know that we are treated with options that are considered to be most effective, and safe, for each individual patient. There is, therefore, a movement afoot toward ‘personalized medicine’, which attempts to secure, based on information gleaned from individual patients, the best possible clinical route for that patient. Personalized medicine in juxtaposed as an alternative to population-based medicine, and yet the entire biomedical research paradigm is centered on population science. Seeing the tree for the forest can be challenging. But individualized medicine is a key to the success of the effective treatment of many of our most deadly diseases.
There are thousands of promising pharmaceutical compounds on the shelves at pharmaceutical companies. These are known as “orphan drugs”, and they exist at a loss for companies. In fact, they are often pointed to as justification for the high cost of successful drugs. The argument goes like this: For every drug that actually makes it to market, there are a large number of other drugs that do not; we need to recoup the cost of those investments, too”. While it is certainly true that pharma spends billions on R&D, they also spend billions on salaries and bonuses for executives. Also, it is not altogether clear that companies who experience losses due to poor or ineffective exploratory R&D are entitled to recoup their losses. Imagine an ice cream business stating that their high prices were due to all of the flavors they tried out while developing their blockbuster flavors. The difference is the presumed added value in doing failed research because it could have benefited humanity. However, exactly how much of this failed effort is due to poor practices, or inefficiencies that result profit-taking instead of re-investment, is unknown.
Another complicating factor is a trend toward homogenization of healthcare options. While the capitalist in me appreciates an honestly earned financial incentive just like anyone else, there seems to be a missing financial mechanism that uses consumer demand; consumers are often not free to choose directly (they are rarely told all of the options), and this places the medical community as an arbiter in the economic cycle. On top of that sits a regulatory body that by its very nature restricts treatment options, and has moved aggressively to restrict health claims for food products, even when studies strongly support those health claims.
While idealists call for collaborative medical research on tough problems, there is a paradox of translation. The more valuable a new approach to medicine is, the more likely a research institution is to keep it a secret. This means that fewer people around the world can study the problem, and increase knowledge. The more ubiquitous a technique or new drug is, the less valuable it is to a single corporate entity, and while many more people can study it, the less likely it is to be brought forward as a product. Further, as research is a massively parallelized endeavor, it seems likely that some parts of a solution to a medical issue may be known and owned by one entity, while another critical part may be known by others. I have been told by CEOs of some companies that these parts of knowledge often cannot be brought together thanks to the network of lawyers who protect their companies’ intellectual property.
At the height of the Great Recession, I proposed an Intellectual Property Share Market (Lyons-Weiler, 2009) to allow investors to drive forward good ideas in biomedicine and other areas allowing the dollars to vote for the IP that might be brought forward. This idea exists in a less formal way via crowdsource funding; however that approach lacks the financial payoff to investors, as crowdsource funding is usually a gift.
Some point out the fact that people can live with HIV as evidence of success at the level of the FDA, specifically in terms of being able to expedite turn-around times on treatments. However, given that so much is known about the biology of HIV, and that it remains endemic in the human population, AIDS due to HIV infection can hardly be called a translational success. In 2015, estimates are the 1/8 people who are infected with HIV do not know they are infected. Approximate 1 in 4 new HIV infections are in youth aged 13-24, and most of them are not aware of their infection, and that they can pass it on to uninfected persons. Between 1.5-1.9 million people die every year from HIV/AIDS. Over 39 million people have died from HIV/AIDS since the transfer to humans occurred. While the number of deaths due to HIV/AIDS is decreasing, the number of new infections in 2013 was 2.3 million. Overall, there have been 75 million infections worldwide, with around 35 million deaths thus far. That’s a kill rate of around 46%. There are currently around 6,300 new infections per day.
How can the US government agency responses be lauded as a ‘success’? Where is the vaccine? Where is the cure?
HIV is now highly profitable for the pharmaceutical industry, as it produces patients that require lifelong treatment. And yet with a kill rate that rivals those of the deadly Ebolavirus disease, HIV/AIDS is accepted by the public as a fact of life. While we all hope for a cure, the fact is, the disease is endemic to our species, until further notice of cure.
Is this necessary? Or is there a cure, and the HIV drugs more profitable? This type of conspiracy thinking occurs, in large part due to the lack of leadership. Key individuals in positions could have, for example, protested against the US’s solitary negative vote in 2003 against a United Nations resolution on access to drugs in global epidemics such as HIV/AIDS, tuberculosis and malaria. The resolution would have made low-cost, generic versions of drugs available worldwide. When one realizes that the massive profits of the pharmaceutical companies make from treating HIV/AIDS in developed countries comes at a cost of lives in less developed countries, it is easy to see why some proportion of people find those profits ill-gotten. In matters of public health, profit should come as a secondary, not a primary consideration.
Cost effective analysis is usually conducted from an institutions’ point of view, and includes consideration of the cost of adopting a new drug relative to the cost of existing practice, compared to the increase is clinical effectiveness upon adoption of the new drug, i.e,
CE = (C1-C0)/(E1-E0)
This conceptual analysis is made challenging due to the different units (effectiveness must be monetized to appear in the same units (dollars) as cost) and this make analysis not at all straightforward. Profit models nearly always result in the determination of charging what the market will bear. There are some circumstances, at a fixed production cost, in which the increase in the number of units sold due to lowering prices is a major factor in clinical adoption. The larger the percentage of the clinical population that can afford a treatment, the more widespread its use may be. Thus, price models of drugs (which is something that pharmaceutical companies rarely share) may have two or more optimal price points when price can make adoption less likely. Classic break-even analysis does not apply in these situations, because if no one in a clinical population opts for a new treatment due to cost, no price will allow cost recovery.
Not all profits from disease share moral equivalence. Profits gleaned from the prevention of the spread of the disease seem morally sound. Take, for example the case of HIV/AIDs. The FDA approved, in July 2012, the drug Truvada (Gilead, Inc.), which reduces HIV infections in people at high risk of HIV infection when used in combination with condoms and counseling (Grant et al., 2010). Truvada, a fixed-dose combination of Tenofovir/emtricitabine, has minimal side effects. Truvada is not indicated for general use; and HIV/AIDS is on the rise in the poorest parts of the world. Whether cheap generic versions of Truvada may be made available to people with HIV positive partners less developed countries or not remains to be seen. A vaccine or HIV/AIDs always seems to be just around the corner; I hope that research using Virus-Like Particles (VLP’s), such as those used in the Ebola outbreak to screen thousands of potentially effective approved drugs (Kouznetsova et al., 2014) may provide carriers of multivalent vaccination against all major clades of HIV strains. I explore the translational successes of HIV/AIDS more in a chapter in this book.
As ugly as the truth about the preference of profits over treatment options exposed by HIV/AIDS may appear, it would be terribly naïve and great disservice to my biomedical and pharma executive colleagues to represent their mindset considering economic dimensions alone. They, and insurance companies, and healthcare consumers are stakeholders with very distinct – and often contrasting – perspectives and interests. Many prefer to think also in terms of benefits and utility to society. Measures such as quality of life years (QALY) are often considered, and are occasionally monetized for inclusion in cost models. Some models are fairly sophisticated, using statistical resampling methods and Monte Carlo simulations. Nevertheless, the definition of QALY still contains a high degree of subjectivity. However, the concept allows the consideration of the valuation of the clinical benefits of the cost of new treatments compared to existing treatments. A common method is Incremental Cost-Effectiveness Ratio (ICER). Bang and Zhao (2012) advocate for using of the median, not the mean, in ICER analysis due in part to the potential for highly skewed distributions when the care of a few patients in very high. They have also worked out median-based ICER for use with censored data (Bang and Zhao, 2015).
Total costs and total benefits within a given area of clinical practice would capture the entire distribution for an institution, however, and there is no reason not to consider them. From an institutional point of view, and from a producers’ point of view, few factor in the lost income and loss of benefit due to non-adoption caused by price (declined treatments), and therefore cost effectiveness considerations need updating to consider expected partial adoption in the consideration of relative gain.
Price gouging takes place when the seller can place any price, knowing the buyer will pay – or at least try to pay – any price for the product. There are approximately 2.6 million hepatitis C patients in the US. Imagine a drug that could cure hepatitis C – nearly any price above production cost would be a blockbuster and generate remarkable amount of income for the company that produced the treatment. Imagine a company that priced that drug to the point where a mere 30,000 patients and their insurers could afford the treatment in the first year. At high enough prices, even 30,000 patients makes the drug a money-maker, and on the books, projections are that at least that many if not more cases among the wealthy are expected. Thus, massive profits are expected, and the disease will continue to flourish among the (relatively) poor, generating sufficient numbers of paying patient to keep those profits coming.
Express Scripts (2015) produced a report that summarized the trend succinctly, identifying compounded therapies, hepatitis C and cancer medications as the major drivers of increases in health care costs in the US. In 2014, these three types of treatments made up two-thirds of pharmaceutical drug spending in patients whose care cost exceeded $100,000 in 2014. This is due in part to the number of receiving medication treatment for hepatitis C jumped 733% in 2014. Many had delayed other treatment, waiting for a breakthrough. The trends involved increase is use and cost.
Gilead Sciences acquired and manufactures and sells a drug called Harvoni, which completely cures most people with the most prevalent hepatitis C subtype. A three-month costs $94,500, over $1,000 a pill. According to a Bloomberg report, that is more than double the expected cost for the treatment when Gilead acquired the drug from another company (at a reported cost of $11 billion). The drug generated over $10 billion in sales in 2014; thus, Gilead has by now (June 2015) easily recouped the cost of the investment. There are alternatives to Gilead’s one pill per day treatment that are nearly as effective, and insurers are recommending those options to patients.
All of these formal considerations of price and value assessment would be nice if there were evidence that these factors actually are considered in setting a price for new drugs. In an analysis of 51 cancer drugs approved over 5 years, In June 2015, Mailankody and Prasad (2015) of the NIH’s Medical Oncology Service, National Cancer Institute found that the average cost of new drugs was over $100,000. They failed to find any difference in the cost of drugs approved on the basis of progression free survival and overall survival; they found no difference between new drugs with a novel mechanism of action and next-in-line drugs. In fact, there was no discernable relation between the overall improvement in endpoints and cost. The authors concluded that Pharma set the cost at “what the market would bear”.
The tendency to price medicines based on what the market will bear has place many treatments out of the reach of the masses, and causes payees – including Medicare and insurance companies – to refuse treatments based on cost. This leads to lower than possible consumption, and also to artificially-justified inflated prices for similar, even pre-existing options, spiraling health care costs – and profits – into the stratosphere. Competition is supposed to keep prices down. In the case of effective treatments, however, Pharma seems to believe that patients will pay nearly any price. As long as competitors raise prices to maintain projected revenues for investors, the practice will continue until some unseen ceiling it hit. The practice has increase the cost of treatment of multiple sclerosis from about $10,000 a year in the 1990s to over $50,000 a year or higher (Hartung et al., 2015).
The copays add significant financial burden to patients. All of the major drug companies have patient assistance programs that help cover the cost of medication when patients have insufficient insurance, or no coverage and cannot otherwise afford it. However, the cost to government-insured, especially those with fixed annual budgets, means refusal of coverage to other patients, placing effective treatments out of reach for many doctors and patients.
Insurers have long complained about the skyrocketing costs of treatments, and doctors are joining in. The study by Hartung et al. (2015) was motivated in part by the inability of doctor co-authors to provide treatments to their patients.
This practice is anti-capitalist, inhumane, and unsustainable. Bloomberg Business (Tozzi, 2015) called these market trends “Bizarro”, providing an analogy of the first iPhone being manufactured and sold alongside its newer versions at ever increasing prices. The percent increase in the cost of drugs was compiled for Table A1.
| DRUG | DATE APPROVED | INITIAL COST(IN 2013 DOLLARS) | 2013 COST | INCREASE |
| Interferon-β-1b (Betaseron) | 7/23/1993 | $18,591 | $61,529 | 231.00% |
| Interferon-β-1a IM (Avonex) | 5/17/1996 | $12,951 | $62,394 | 381.80% |
| Glatiramer acetate (Copaxone) | 12/20/1996 | $12,312 | $59,158 | 380.50% |
| Interferon-β-1a SC (Rebif) | 3/7/2002 | $19,763 | $66,394 | 236.00% |
| Natalizumab (Tysabri) | 11/23/2004 | $31,879 | $64,233 | 101.50% |
| Interferon-β-1b (Extavia) | 8/14/2009 | $35,644 | $51,427 | 44.30% |
| Fingolimod (Gilenya) | 9/21/2010 | $54,245 | $63,806 | 17.60% |
| Teriflunomide (Aubagio) | 9/12/2012 | $48,349 | $57,553 | 19.00% |
| Dimethyl fumarate (Tecfidera) | 3/27/2013 | $57,816 | $63,315 | 9.50% |
| Notes | ||||
| All costs are annual. | ||||
| 2013 costs were sampled in December of that year. | ||||
| Interferon-β-1b is marketed as Betaseron by Bayer and Extavia by Novartis. | ||||
| Source:Hartung et al., 2015 | ||||
The prices for these drugs are about ½ those in Table A1 in Canada, Australia, and the UK (Hartung et al., 2015). These patterns reflect a trend not restricted to MS drugs.
The tendency for old, competing drugs to be priced higher due to overpricing by that latest approved drug is bizarre; it is hard to understand from standard supply-side driven competitive market dynamics.
Under normative free market supply and demand dynamics, producers will provide increased supply as prices rise because all firms will look to maximize profits. Under this model, supply is a function of price and quantity. A positive correlation usually exists between price and quantity. Typically, demand increases when prices are low, consumers tend to purchase a larger quantity of the product. When prices are high, consumers tend to purchase a lower quantity. Supply and demand influence each other differently depending on availability of the product – that is, it is usually seen that producers control the specific conditions that drive supply, and therefore, demand. Surpluses and shortages due to changes in production cause fluctuation until the product reaches a fair market value.
There are myriad oddities about pharmaceutical economics (pharma economics) that do not fit this typical model. Factors that increase demand (in addition to decreased prices due to surplus and competition) include increased incidence of disease, greater consumer awareness, and advocacy for purchase via clinicians. Direct-to-consumer marketing can increase demand for a specific treatment. DTC marketing tends to make consumers believe that the drug being advertised is as the latest-breaking treatment, and they assume that it is also the most effective. Neither of these assumptions are safe assumptions, and thus patients rely heavily on the advice of their doctors.
In market force economics, price is usually negatively responsive to competition. In pharma economics, this dynamic is missing because producers of older options find that the average market value of treatments same in class increases. The result is a positive feedback loop with negative consequences: Price increases become a runaway process, leaving some consumers out. A main difference here is that in medicine, consumers may be left out of the selection of offerings on the market by many intermediary stakeholders.
In pharma economics, individual patients do not consume more than the prescription requires; theirs is a fixed consumption schedule, and, for many conditions, for a short duration. The demand curve is not only flat, as some have decried. In normal market economics, a flat demand curve makes it difficult for producers to effectively vary their production output in a manner that allows them to take advantage of the principles of supply and demand. This usually drives innovation.
In pharma economics, the flat (but steady) demand curve is of little significance because the majority of consumers have less control over their consumption decisions. It is as if the market for some drugs are stuck on a single point of demand (high) when in fact, demand is inflated by the existence of payors other than the consumer: Medicare, Medicaid, insurance companies, and event the producers will pay into the cost of the medicine for a patient as a free subsidy of their entire copay.
When the drugs are life-saving, this comes across to the public as philothropy. A pure cynic would view this strategy as a shrewd investment with a handsome profit and a PR boost. After all, copays are often a mere fraction of the total price of a drug, and the cost of product is much lower than the price. Thus, the idea goes, pharmaceutical companies manipulate both the supply and demand side of the market, driving the runaway price increases.
Some in business will see this as an ultimate expression of free market capitalism, and will celebrate pharma’s successes unapologetically.
Others (mostly consumers) will see this as a perversion of free market capitalism; they will feel manipulated, and they will experience a sort of buyer’s regret, for not having received a better deal – not knowing the details of the imagined better deal. They will know that they (as a class) will have been bilked somehow, in some way (perhaps via higher insurance premiums, or higher overall copays).
Even when some patients are left out due to cost, the fact that some consumers cannot afford the treatments is irrelevant because the loss in potential profit from those consumers is hidden by the artificial increase in drug prices. This inflation is boon for everyone except low-income consumers.
This outcome is similar to a phenomenon in market science in which one producer is strong and is faced with weak competitors; providers facing weak competition are likely to apply high mark-ups and set prices above the competitive level.
This unhooking of the relationship between supply and demand replaces the free market with an economic oligarchy. The process is not identical to price fixing, because companies that are competing are not communicating with each other directly. They pay less attention to the normative factors that cause them to set a price (units sold) and more attention to the price range of similar options for healthcare, even when those options are not same-in-class. The competitors are, however, communicating with each other via their pricing.
Society objects to exorbitant profits when it means that the price will place the product out of reach of some of the patients. However, when society values a product to the extent that our society values drugs that either save our lives or dramatically improve or maintain our quality of life, the potential for market-independent pricing is high.
Such an outcome can have dire consequences, especially in terms of limited supply for deadly infectious diseases and in seasonally fluctuating diseases. These factors conspired to lead to a serious shortage of availability of effective malaria drugs in Cambodia (Patouillard et al., 2015).
In the US, key voices have described pricing as “chaotic”, citing immense and unpredictable pricing from provider to provide, and high regional variation (Shanley, 2011).
In a large market where company value is measured in terms of stock values (which are in principle determined by dividends) the pressure to stay competitive is immense. At some point, the absolute value of a product loses meaning, and the relative value becomes paramount. That is, the dollar value of your product only makes sense in terms of the value of your competitor’s product because as they stand to profit more than you, the value of their company stands to increase faster than yours. They stand to benefit at a compounded rate, and thus will be able to outcompete you directly on the product in question, but also in other areas of competition (better investment in R&D, more marketing, etc.). Thus, to stay relevant, the pressure to keep your price up with others is immense: Prices begin to drift higher and higher away from commodity value as each company checks the value of their offerings against the market.
The resulting runaway increase in pricing brings to mind the statement by the Red Queen to Alice in Lewis Carroll’s “Through the Looking Glass”:
“Now, here, you see, it takes all the running you can do, to keep in the same place”.
Go/No Go decisions also influence the scope of health care options. Such was the case for vaccine development in Ebola. The pharmaceutical company’s profit filter is one of many that determine which options for care are even available to our doctors. But it is not the only factor. At question is not whether doctors are willing to treat patients, or cure them. The action of choosing a particular route of medical care is often a result of consultations with peers, dependent on protocols, approved by associations, limited by the FDA regulatory process and dependent on approval by health care insurance providers. Sometimes, small changes in healthcare practices are so easy, practical, and inexpensive, that it makes one wonder why all improvements don’t come that easy. An example of this kind of translation is the observation by one doctor that patients who were acquiring pneumonia infections after surgery and dying while being treated for other diseases needed to have the head of their beds raised. Patients at risk of developing pneumonia are now also advised to breathe deeply and cough 4-5 times an hour to prevent the illness – a no-cost, life-saving practice that can never be put on the stock market.
Health care spending on prescription medications accounts for1.6% of gross domestic product in the United States (Centers for Medicare and Medicaid, 2014). The use of, and constantly increase in the price of brand-name prescription medications is the primary driver of this growth, increasing 15% in price in 2014 alone (Silverman, 2015).
Use of comparatively lower priced generic drugs now accounts for 86% of all prescriptions. Generics have saved US consumers nearly $1.5 trillion in the past decade (GPHA Online, 2014).
One might suspect that some doctors may offer name-brand drugs over less expensive generics; to a degree, those suspicions are correct. Patients are evidently complicit in this; Campbell et al. found that patient demand for name-brand drugs is one factor that in part explains why doctors tend to prescribe more expensive name-brand options over generics. Other factors include type of doctor, and years of clinical experience: Older doctors were more likely to acquiesce to patient requests for name-brand drugs (Campbell et al., 2013). Some doctors may write (“Dispense as Written”, or check a box, which then mandates that the pharmacist use only name-brand versions of a drug. They do so at the risk that some patients will be less likely to use the medication as directed: They may skip doses, to extend the time between filling expensive scripts, leading to less efficacy. Patients receiving less expensive generics showed a 12% increase in compliance (Shrank et al., 2006).
To stem the rising tide in cost, substitution laws have been passed in every state. These laws either authorize or mandate pharmacists to fill most prescriptions for a brand-name drug with its generic counterpart. Similarly, tiered insurance formularies are used to impose higher cost-sharing obligations on patients for brand-name drug. Paying clinicians to prescribe generics legal for some, but not all payors (Sarpatwari et al., 2015).
With all of the regulatory hurdles, and the profit pressures, sometimes, it seems a wonder that any improvements in medicine occur at all. In this book, I explore the pitfalls of modern medical research and point to instances that seem to confirm that American public’s suspicion of cure vs. treatment decisions. I also try to provide a balanced view, by interviewing experts on specific topics, and highlight where more information via research is needed. A book on those topics alone would do nothing more than stir discontentment and suspicion. I use this book also as an opportunity to explore the many successes in a type of medical research called translational research. As I researched each topic, and dove deep into the published records of scientific publications, articles, prospectuses from corporations, and interviews with the researchers behind the translational successes, my journey was open-ended. However, I sought to identify the key characteristics of the researchers, the medical problems, and the research studies themselves that contributed to their translational successes.
References
Bang H, H Zhao. 2012. Median-based incremental cost-effectiveness ratio (ICER). J Stat Theory Pract. 6(3):428-442.
Bang H, H Zhao. 2015. Median-based incremental cost-effectiveness ratios with censored data. J Biopharm Stat. http://dx.doi.org/10.1080/10543406.2015.1052482.
Campbell EG et al., 2013. Physician acquiescence to patient demands for brand-name drugs: results of a national survey of physicians. JAMA Intern Med. 173(3):237-9. doi: 10.1001/jamainternmed.2013.1539.
Centers for Medicare and Medicaid. 2014. NHE Factsheet. http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/%20NationalHealthExpendData/NHE-Fact-Sheet.html.
Express Scripts, 2015. Super spending: US trends in high-cost medication use. http://lab.express-scripts.com/insights/drug-options/super-spending-us-trends-in-high-cost-medication-use
GPHA Online (Generic Pharmaceutical Association & IMS Institute for Healthcare Informatics). 2013. Generic drug savings in the U.S. http://www.gphaonline.org/media/cms/%20GPhA_Generic_Cost_Savings_2014_IMS_presentation.pdf.
Grant RM et al. 2010. Preexposure chemoprophylaxis for HIV prevention in men who have sex with men. N Engl J Med. 363(27):2587-2599.
Guest J, Dietrich WD. 2015. Commentary regarding the recent publication by Tabakow et al., “Functional regeneration of supraspinal connections in a patient with transected spinal cord following transplantation of bulbar olfactory ensheathing cells with peripheral nerve bridging”.J Neurotrauma. 2015 Mar 31. [Epub ahead of print]
Hartung DM et al. 2015. The cost of multiple sclerosis drugs in the US and the pharmaceutical industry: Too big to fail? Neurology. 84(21):2185-92. doi: 10.1212/WNL.0000000000001608.
Kouznetsova J et al. 2014 Identification of 53 compounds that block Ebola virus-like particle entry via a repurposing screen of approved drugs. Emerging Microbes and Infections 3: e84. doi:10.1038/emi.2014.88
Lyons-Weiler, J. 2009. Time for an IP Share Market? The Scientist. To view online: http://www.the-scientist.com/?articles.view/articleNo/27084/title/Time-for-an-IP-Share-Market-/
Mailankody, S and V Prasad. 2015. Five years of cancer drug approvals innovation, efficacy, and costs. JAMA Oncology, Published online April 2 2015, doi:10.1001/jamaoncol.2015.0373. http://oncology.jamanetwork.com/article.aspx?articleid=2212206
Patouillard E. 2015. Determinants of price setting decisions on anti-malarial drugs at retail shops in Cambodia. .Malar J. 14:224. doi: 10.1186/s12936-015-0737-9.
Perkowski, J. 2014. Health care: a trillion dollar industry in the making. Forbes Magazine 11/12/2014. http:www.forbes.com/sites/jackperkowski/2014/11/12/health-care-a-trillion-dollar-industry-in-the-making
Sarpatwari A et al., 2015.Paying physicians to prescribe generic drugs and follow-on biologics in the United States. PLoS Med. 12(3):e1001802. doi: 10.1371/journal.pmed.1001802.
Shanley, A. 2011. From the Editor: Drug prices? Eenie meenie miney mo. Pharmaceutical Manufacturing. http://www.pharmamanufacturing.com/articles/2011/091/
Shrank WH, et al. 2006. The implications of choice: prescribing generic or preferred pharmaceuticals improves medication adherence for chronic conditions. Arch Intern Med 166: 332–337.
Silverman E. 2015. Prices for prescription medicines rose how much last year? http://blogs.wsj.com/pharmalot/2015/01/26/prices-for-prescription-medicines-rose-how-much-last-year/.
Tabakow P et al., 2014. Functional regeneration of supraspinal connections in a patient with transected spinal cord following transplantation of bulbar olfactory ensheathing cells with peripheral nerve bridging. Cell Transplant. 23(12):1631-55. doi: 10.3727/096368914X685131.
Tozzi, J. 2015. How much would you pay for an old drug? If you have MS, a fortune. Bloomberg Business, April 25, 2015.
