We have to thank Martin Shkreli. The greedy, cocksure CEO of Turing Pharmaceutical raised the price of the drug Daraprim from $13.50 to $750 per pill. The justification for the cruel hike? “It’s a more appropriate price.” The fact is, as Jessica Wapner, a researcher and writer on biomedical issues, puts it: “Drug prices are set at whatever the market will bear.” But why?
Pharmaceutical companies can advertise directly to Americans, unlike in many other countries. In the 1980s, pharmaceutical companies were growing tired of doctors being the gatekeepers between patients and newly available drugs. The first prescription drug marketed to the general public was in 1986. Other companies soon followed suit. And in 1997, the FDA further loosened its rules on television ads for prescription medicines, which truly opened the floodgates.
The pharmaceutical industry has a distinct lack of competition, and in fact is monopolistic by design. According to a Kaiser Foundation report, ten pharmaceutical companies accounted for 60% of U.S. pharmaceutical sales in 2004. It’s as if a cluster of multinational corporations have an unwritten understanding that they can just stay in their lanes and get while the getting is good.
The complicated insurance setup in America gives manufacturers an advantage versus a single-payer situation where prices can be negotiated. Single-payer health care systems are able to negotiate prices with drugmakers, which forces the drug companies to play nice — or at least act in good faith. In 2003, a new act meant to “modernize” Medicare and bring prescription coverage into the mix prohibited Medicare (the largest customer in the American drug industry) from being able to negotiate prices with drug companies.
There are complex, private pricing strategy sessions that don’t get revealed to the public. There are special forecasting companies that help drug manufacturers evaluate the field and arrive at complex equations regarding prescription prices. And drug assistance programs aren’t a kindly, out-of-their-own pockets, benevolent gesture. The companies get their money for them — they just tack it on top of what they’re already charging.
Many consumers are shielded from the reality of drug prices because of insurance. That means they keep buying the drug even if their copays go up, which reinforces to the manufacturer that their pricing practices are working. And though some can’t or don’t find a way — and sometimes wind up giving up lifesaving drugs out of financial defeat — the sheer numbers don’t usually rise to the proportions needed to signal to drug companies that they’ve made a pricing error. Because they’re still making a profit.
There’s reason to doubt that Martin Shkreli is very popular with his industry brethren right now: Increased attention on drug prices culminates in a lot of “we’re not gonna take it” talk from politicians and the media.
President Obama is attempting to get Medicare negotiation rights for the most expensive drugs. And in response to the public’s backlash and pressure from within an industry anxious to avoid intervention, Shkreli did finally say he will reduce the cost.