The Drug Problem You Didn’t Know You Had

If you lived on employer-subsidized healthcare plans for most of your career, you probably never paid much attention to the price of prescription drugs. You paid a few bucks every time you needed some. The prices seemed reasonable enough for the various antibiotics, statins, or other drugs that you and your family consumed over the years. some point in the transition to Medicare you will get a feel for the “retail” price of many prescription drugs. The cholesterol fighting drug you probably paid a few dollars for can list for well over $300 for a 90 day supply if you are unfortunate enough to have to pay out of your own pocket. And this is a generic!

The US is one of the few developed countries where the drug market is totally unregulated. Drug prices in the US are set by drug manufacturers, and they are often breathtakingly high. The age-old rationale used by drug companies and their apologists is that high prices are necessary to cover the painstaking research and development involved in bringing a new drug to market.

They also tend to blame the costly regulatory environment in which they operate. This is where the Federal government insists that you prove that your new drug doesn’t kill too many people once it is on the market.

These arguments make sense until you realize a couple of things. First, drug companies don’t tend to spend heavily on R&D compared to other industries like software and technology. And second, the pharmaceutical industry as a whole is more profitable than comparable non-pharmaceutical industries.

So how do big drug companies survive and even thrive in these considerable headwinds? A foolproof mix of lobbying, lawyering, litigating, bribery, and blanket advertising.

No industry spends more on lobbying than the pharmaceutical and health products industry. And it is money well spent. You know you have an effective lobby when you can convince congress to make it illegal for the U.S. Government to negotiate pricing for the billions of dollars of drugs purchased through Medicare. Thankfully that loophole is being closed thanks to recent legislation, but you do have to tip your hat to the drug company lobbyists. It can be hard to get legislators to put drug company interests ahead of their own constituents.

As drug companies repeatedly remind you, new drug development is expensive. Fortunately they have devised a scheme that allows them to charge exorbitant prices on drugs that have been on the market for decades. Instead of costly R&D budgets to develop new drugs, they invest in armies of patent lawyers. These lawyers file a continuous stream of new patents on modestly tweaked old drugs in a classic case of patent law abuse. This keeps competitors out of a monopoly market for years after the patents should have expired. If a pesky competitors tries to enter the market, a companion army of lawyers file lawsuit after lawsuit. This is how you continue to sell a 20-year old drug for $80K a year.

Another significant cost of doing business for the drug companies is paying for the armies of “consultants” trying to influence doctors to prescribe more of a given drug. They might provide speaking opportunities, commission bogus research or offer other perks in exchange for brand loyalty.

Count the drug ads you see on TV. Drug ads are right up there with fast food restaurants, soft drink companies, and auto makers. In a single episode of your favorite show, you can be reminded to eat too much fatty food, drink too many sugary drinks, burn more fossil fuel, manage the heartbreak of psoriasis, and get relief for COPD. It is a lot to take in, and a lot to ask your doctor about.

So to recap, the real reason we extortionate prices for drugs is 1) to pay for lobbying efforts aimed at stopping regulation or oversight of any kind, 2) pay for lawyers to abuse the patent law system, 3) underwrite bribes for doctors to tout and over-prescribe your drugs, and 4) buy more ads to convince the public to pay too much for a drug they probably didn’t need in the first place.

Americans spend $1300 a year on medicine. Sure, as a nation we take a lot of drugs, but we also pay a lot more than most for the privilege.