Don’t be fooled by the current Washington, D.C. rhetoric about “reforming” the pharmaceutical industry. Most recently Sen. Chuck Grassley has been promoting his bill which would place inflation-based caps on Medicare drug prices. There are also proposals to eliminate “middlemen” and increase transparency in pricing. While these things would be an improvement, they don’t address the fundamental problem of a drug industry gone wild.
Thanks to our system for granting patents for new drugs, these companies are given a virtual monopoly over the sale of drugs they bring to market. They are protected from competition from others who might bring lower prices to consumers. That protection lasts for years and assures them that they can set the price at any level they choose.
Big Pharma tells us they need protection from competition and justify their high prices because of the costs of research required to develop new drugs. But much of that research is done with public money by universities and government agencies. Drug companies are granted lucrative licenses for distribution to the public. They spend more money on sales and marketing than on research.
Not only do these companies reap the benefits of publicly funded research and favorable patent laws, they also were big beneficiaries of Trump’s tax cuts. Americans for Tax Fairness reports that Big Pharma got $6 billion in tax breaks in 2018 on domestic profits and an astounding $70 billion on offshore profits.
Adding insult to injury, five of the top pharmaceutical companies used a total of $45 billion of the Trump tax windfall for stock buybacks, which benefit wealthy investors and company executives. That’s more than 250 times the amount the same companies announced for worker bonuses. While the tax cuts were pitched as an economic stimulus, those benefits have not shown up in the form of lower prices for consumers. Quite the opposite. Prices have continued to climb dramatically.
This price gouging is not limited to newly developed drugs. Insulin has been used in this country for decades. In the 1960s, a vial of insulin cost less than a dollar. Today the insulin market has been cornered by three companies. As a result, the cost of insulin rose more than 17% per year from 2012 to 2017. If you are one of the 7 million Americans who need this drug, you just have to figure out how to pay for it.
Insulin is just one example of a culture of profiteering in the pharmaceutical industry. There are plenty of rotten apples in this barrel. Remember the EpiPen, a life-saver for people with severe allergies. Mylan, the company which holds a virtual monopoly on the EpiPen, increased its price almost five-fold between 2010 and 2016. Turing Pharmaceuticals, which purchased a drug called Daraprim, raised its price from $13 per pill to $750 simply because it could. After a public outcry, the company’s CEO went to prison for securities fraud.
The pharmaceutical industry is more profitable than big oil, automakers, and insurance companies. Like much of corporate America, it spends vast sums on lobbying and elections to make sure it makes more and more money. It’s not that Grassley’s bill and others are not an improvement over the status quo. The problem is that that they don’t go far enough. Big pharma is simply out of control, and half steps are not going to fix the problem.
The drug industry is a long way from the Norman Rockwell image of a kindly old pharmacist mixing medicines. It now looks more like a fat cat sitting on a pile of cash.
Ken Toole is the board chair of Big Sky 55+. He served in both the Montana Senate and the Public Service Commission.