We Need A Warby Parker For Overpriced Prescription Drugs
U.S. pharma is ripe for disruption
Ten years ago, Albuterol, one of the most common asthma medications, cost one-fifth of what it does today. That’s not because the cost to produce it increased; it’s because Albuterol was re-patented and artificially re-priced at a higher cost. Whereas it used to cost $15 per inhaler, it’s now as much as $100. Rhinocort Aqua, a prescription nasal spray, costs $250 a month at a pharmacy in Oakland, California. But in Europe it costs just $7.
Those two drugs aren’t outliers. In the U.S., prescription drug customers pay several times more than almost anywhere in the world. Many of us only feel the cost indirectly—it’s our insurance companies that get gouged (though our premiums eventually reflect the price gouging)—and overpriced drugs are one of the ways the poor and uninsured get screwed. Obamacare will help those people get their medications, at least, but it’s just shifting the aforementioned gouging to a new payer.
Last week, The New York Times printed a front page story called The “Soaring Cost Of A Simple Breath,” wherein it detailed the alarming state of prescription drug prices in the U.S. as compared to those in its more affordable neighbors in Europe and Asia. (If you haven’t read it, you really should.)
While politicians debate in circles about whether or not to keep the Affordable Care Act, a more fundamental question I think we need to actually be asking is why is our health care so damn expensive?
As the Times pointed out, prescription drugs make up 10 percent of the cost of health care in America—a percentage that is already the highest per-capita in the world. They contribute significantly to the staggering price of health insurance. Whether the market or the government bears it, the burden of overpriced drugs weighs down the entire healthcare system.
The reason many drugs cost so much is there really is no “free market” dynamic at play with them. Many drugs are only made by one parent company, and aggressive patent finagling lets them remain artificially monopolistic in perpetuity. Essentially, there exists a small cartel of American drug makers that pull the strings of the drug market like puppeteers—in perfect legality, but apparently sacrificing many a person’s life for profits (the CDC estimates 3,300 avoidable deaths each year from asthma alone because of lack of access to medication), and without true competition to force prices to an equilibrium.
Yet developed nations overseas experience none of these problems at the scale we do. You can get the same drugs in London or Tokyo or Amsterdam as you can here. As the Times reports:
Unlike other countries, where the government directly or indirectly sets an allowed national wholesale price for each drug, the United States leaves prices to market competition among pharmaceutical companies, including generic drug makers. But competition is often a mirage in today’s health care arena — a surprising number of lifesaving drugs are made by only one manufacturer — and businesses often successfully blunt market forces.
Drug companies spend $250 million a year to lobby for this right to overcharge, and some even pay generic drug makers not to make competitive drugs. (Read that sentence again and tell me if you’re still not flabbergasted.)
The U.S. doesn’t have a monopoly on good medication. We import most of our drugs from overseas anyway—where they cost way less.
Venture capitalist and Netscape founder Marc Andreessen famously said that “Software will eat the world,” meaning that technology is disrupting established markets everywhere, just as it has with commerce (eBay, Amazon), payments (PayPal, Dwolla, Square), Media (Wordpress, Twitter, Craigslist), real estate (Airbnb), and transportation (Uber).
Technology has successfully toppled once-unbreachable monopolies in legacy industries over the last several decades, and especially the last two. Code can erase market inefficiencies, and global communication and transportation erases the barriers monopolies enjoy. If Andreessen is correct—and history indicates he is—software stands to eventually eat every industry we know.
I think it’s time software ate drugs.
Here’s how that could work
- (Note: before coming back and commenting on this section, please read the Obstacles section below.)
- (Second Note: I want to acknowledge that many people and drug companies care A LOT about saving lives. That doesn’t mean there isn’t a problem—or a big opportunity for innovation—but it does mean we shouldn’t demonize or unjustly stereotype everyone in the industry.)
I propose an e-commerce model for selling generic drugs online in the way Warby Parker does with glasses. We’ll call it Warby Drugster for now. Like Parker, Drugster would source generic product from overseas where it’s made (in the same factories as the brand-name products, for the most part) at extremely low cost. Prescription-seeking users would upload and verify their prescription information to Drugster’s website in the same way they do with Warby Parker when they order prescription eyewear. Drugster’s job would be to validate and verify the prescriptions, just like a local pharmacy, and then ship orders in a timely fashion.
It would start with just a few types of drugs, the low-hanging fruit like asthma inhalers and sleep aids. Then, lean startup-style, Drugster would iterate and expand to any and all drugs that people take on an ongoing basis. I wouldn’t anticipate antibiotics or short-term prescriptions being part of the mix early (or perhaps ever) this seems to contradict your previous statement, but instead prescriptions that need to be taken continually (which will help justify customer acquisition costs). Mood stabilizers, anti-anxiety medication, and other mental health drugs would be especially high on my list. Birth control, too.
Then, Drugster would take another page from Warby’s book (or actually from Tom’s Shoes). For every prescription ordered, Drugster would donate a prescription to someone in need. Every time you order an asthma inhaler, a needy kid in Oakland or Prattville or the Bronx gets a free inhaler, too. In this way, the company and its customers would help to stem the country’s health crisis in a way that escapes the red tape and needless infighting of Washington. This buy-one-give-one concept is perhaps the most important part of this enterprise, in my opinion.
How does this affect drug companies? Good question. There will still be a market for brand name drugs—just as Warby Parker hasn’t completely destroyed high-end eyeglass makers and generic ibuprofen hasn’t killed Advil—but the presence of a competitor like Drugster will likely bring the rest of the market to price equilibrium and/or completely disrupt some lines of drugs. But it would primarily do so where drugs enjoy artificial price inflation.
To keep itself honest, I’d propose that Warby Drugster take a fixed and transparent markup on all products—say, 25 percent of the cost (or actually 25 percent of cost x 2 to cover the charity prescription as well). This price would be incredibly competitive in the generic market. The fixed markup would exist because the last thing I’d want is for another company to develop profit incentives that would compete with the one of helping every individual get the drugs he or she needs. Just because you can charge more doesn’t always mean you should. In other words, we don’t deserve to win if we can only do so by marking things up ten-fold at the expense of a dying kid.
Of course, drug companies will freak out if that happens, which brings me to…
I’m a journalist and a geek, not a pharmacist or a politician. I’m looking at a huge and obvious problem and proposing an armchair tech solution. I don’t know what I don’t know about the industry (although, comfortingly, that has been the case with many great companies, and doing things differently is the definition of innovation).
But this would surely not be an easy endeavor. Here’s the list of things I foresee getting in the way of such a plan, aside from the usual risk inherent to starting any company (please weigh in if you have thoughts on any of these!):
Regulation. This could be the big one. I have no visibility into it; however, I assume if you’re selling products that are already FDA approved, the challenge is a matter of logistics rather than one of fighting regulation.
Import Restrictions. Getting drugs from Europe or China to the US—how hard could it be? :) Famous last words, I’m sure.
Lobbyists. This could be a doozy; health and pharma lobbyists spend hundreds of millions of dollars a year wooing legislators to their thinking. Could a startup win against that kind of political war chest? I’m reminded of the legislative battles Uber fights every time it enters a new market. The best defense here will be proactivity, methinks.
Malicious Lawsuits. One way to kill a company like this would be to throw a lot of money at lawsuits meant to bankrupt it. Right? Any time a cartel gets threatened, this tends to happen. Aereo comes to mind, as a recent example.
What else am I not thinking of?
At scale, such a service would have access to a massive amount of data from the health profiles of its users. When anonymized and aggregated, the data could be used for research (and in the interim could certainly be used for some incredible content marketing).
Additionally, Warby Drugster could periodically ping users via push notification or email and ask survey questions about how they’re feeling, how they’re using the drugs, etc. It could collect valuable market research on the effectiveness of different drugs, cross-tabulated by the medical history and physical details of thousands of patients.
A Thought Experiment
A service like this could change the world. Save lives. And, if that’s not motivation enough, it also could make a lot of money.
I’m writing this post as a thought experiment. My day job keeps me quite busy. So, this is not a pitch for something I’m planning or able to do myself at this point. (However, if someone were to create a Warby Drugster, I will absolutely help!)
Mostly, I’m interested in starting a discussion around using technology to solve one of our society’s most important problems.