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Drug Pricing

By May 5, 2021Commentary

Back before CV-19, one of my biggest peeves was drug pricing.  Drugs are covered by the patent laws, which means that the developer of a new drug which obtains patent protection has a lengthy period of time when they are protected from competition.  Some special laws give certain categories of drugs even more protection.  The patent laws are designed to encourage innovation by giving inventors the financial benefits of their work for some time.  For most products and services there are competing ways to fulfill the same need, so pricing abuse is generally limited.  The drug companies, however, have perfected the art of using the patent laws to protect their products and they often have little competition for a certain therapy, so we get very high drug prices and constant price increases even though the cost of making the drugs hasn’t gone up.  And the drug companies have become marketing machines that persuade consumers that they  just have to have this particular medicine.

This study is one in a long line to not only show how abusive drug pricing is, but that consumers pay the price.  You pay it in two ways.  One is your share of the premiums you pay.  Drug costs are one reason insurance premiums keep rising.  And you pay it in higher cost-sharing, deductibles, copayments and coinsurance.  The study amply demonstrates how significant that increase has been for consumers.  (JAMA Study)  Drug pricing and drug contracts with PBMs and insurers are complicated, and any rebates and discounts generally don’t benefit consumers, although some regulations are coming into place to require that.

We probably need some form of patent protection.  But patent protection screws with the free market and distorts competitive factors.  Since the government grant of a patent is the only thing allowing these abusive pricing practices, I think government regulation of prices is fully warranted.  Anyone who gets a patent on a therapeutic should have limits on the margin they seek for the initial price and should have strict limits on price increases.  Anyone who violates those rules should have some or all of the years of patent protection taken away.  Otherwise, we are just needlessly subjecting ourselves to excessive and unnecessary pricing.  There is a reason why the drug industry is historically the most profitable in the country and that reason is the patent laws. Those laws can be used to control pricing.

Join the discussion 4 Comments

  • Matt says:

    The third way you get to pay is in taxes as government run insurance programs (medicaid/care) cost more because of these costs

  • rob says:

    I’m no expert but it seems like big pharma are all very slow growth companies so I don’t see where there’s much fat to trim off their profits.

  • Kevin Roche says:

    There is not necessarily a link between growth rates and profitability. You can be slow growing but very profitable. Large drug company revenue can grow in spurts based on introduction of new drugs. On a multi-year compound basis they do fine. And their profit growth is quite good and more importantly, their cash flow is stunning.

  • Duane Oyen says:

    The issue is not whether the PhRMA companies are profitable, fast growing, etc, it is whether they are legitimately subject to free market competition so that their pricing reflects actual free markets or are an artifact of regulatory capture and oligopolistic market manipulation. Conservative medical care policy analysts consistently talk the top line- prescription drugs are not the biggest factor in health care costs, so they tend to ignore the issue or trot out the usual bromides about private enterprise superiority. Anyone who looked at the issue from the standpoint of the consumer would immediately ask why and how so many drugs not covered by current patents are so expensive, especially therapeutics like insulin and asthma meds. The issue is not about patents, and it is almostnever addressed (except by a few people such as Robin Feldman of U-Cal Berkeley- see https://www.amazon.com/s?k=drugs+money+and+secret+handshakes&hvadid=77927994177183&hvbmt=be&hvdev=c&hvqmt=e&tag=mh0b-20&ref=pd_sl_5diwbibc4y_e) Medicare is guilty of near criminal negligence when it does not require Med Advantage formularies to offer generic drug alternatives that are available instead of pricey brands- e.g., Caremark pushing Advair and banning 3 different generic alternatives because they get big kickbacks from GSK.

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