The drug industry has enraged U.S. consumers with soaring drug prices. An angry mob is at the gates and CEOs seem surprised by the outrage – even a bit insulted – that their methods have been called into question.
How could so many supposedly smart pharmaceutical leaders be so dim?
You could chalk it up to a bunker mentality, but that would give them too much credit. The correct word may be hubris. Big Pharma has called the shots for so long on American drug prices that perhaps it doesn’t realize the game has changed.
Insurance deductibles are rising almost as fast as some medicine prices. Between 2006 and 2015, deductibles for people with employer-based insurance increased 255% from $303 to $1,077, according to a survey from Peterson-Kaiser. Adding to the trend, 40% of the privately insured are now in high-deductible plans – up from 25% in 2010, according the Centers for Disease Control, up from 25% in 2010.
That means more consumers are finally seeing the true costs of prescriptions, as they stand agog at the pharmacy counter. Previously, drug companies counted on an arcane distribution and payment system that masked price increases behind insurance copays.
What we are seeing now is pure market failure — the latest example involving executives at Mylan, which raised prices on its EpiPens by 400% since 2009. Most drug companies enjoy near monopolies. The industry has spent $2.3 billion over the last 10 years lobbying Congress to make sure the government can’t negotiate Medicare drug prices. Lobbyists have also made sure that regulations block medication re-importation into the US from Canada and allow extended periods of market exclusivity for certain new drugs. Add to this litany, the pay-to-delay tactics drug companies employ to block new, cheaper generics from entering the market and you have a perfect prescription for abuse.
Market dominance usually leads to arrogance. Based on reactions so far, we should not expect much forward thinking from Big Pharma CEOs. They now face an array of powerful players who have coalesced to push back on price increases. They include AARP, American Hospital Association, America’s Health Insurance Plans, Kaiser Permanente, Federation of American Hospitals, American College of Physicians – and even Walmart.
With pharm companies’ reputations at stake, you’d think the drug industry might look for ways to improve its image. Wrong. As it stone walls on prices, Big Pharma is busy attacking one of the few federal programs that helps make drugs affordable for uninsured and underinsured patients. I’m talking about the 340B drug discount program, signed into law by George W. Bush in 1992.
The program, which my consulting firm advises companies on, was signed by George W. Bush in 1992. Big Pharma is trying to gut the program in Washington by getting the federal agency that controls the program to dramatically limit hospital and patient eligibility. These changes will literally pad drug company profits at the expense of struggling hospitals and the poor patients they serve.
The program requires drug companies that sell drugs to Medicaid and Medicare Part B to provide discounted medicines to health providers who treat high numbers of poor people. Providers extend those discounts to needy patients and also use the savings to help fund all manner of clinical services for the underserved. Hospitals in the program treat twice the number of African Americans, Hispanics and Native American patients as non-340B providers.
Note: The program is not taxpayer funded, but rather subsidized via discounts (about 35%) from the drug industry. And it represents just 2% percent of the $457 billion annual US drug market.
It is hard to imagine how supposedly smart people who run pharmaceutical companies can be so daft. They owe their customers and shareholders a better explanation of why their current strategy warrants such fat pay checks. The real question is, will they provide meaningful solutions on drug pricing or just get boiled in their own oil?
Gil Gutknecht is a former Republican Congressman from Minnesota. He consults with a number of companies and organizations, including 340B Health, a non-profit association of providers participating in the 340B program.
