As much as I admire and support AARP, of which I am a member, I am a little disappointed in the recent article in AARP Bulletin entitled “Why Drugs Cost so Much” by the editors (May 2017 and online). While I appreciate the attempt to help the American public by tackling this vital issue, I feel that the editorial team could and should have delved a bit more deeply in a few places, which I will outline below. (For a companion blog post on responsibilities of the media, see “News Stories that Don’t Go Far Enough.”)
Overview and Critique
The editors lay out the problem facing American consumers who need and use prescription drugs. Despite widespread complaints from many citizens, and even President Trump when he was a candidate, “the price of pharmaceutical products in the U.S. continues to skyrocket.” The editors provide dramatic examples. In answer to the question of why prices are so high, the editors quote Leigh Purvis, director of health services research for the AARP Public Policy Institute, “The simple answer is because there’s nothing stopping them.” The article also makes the point that “[o]ther countries drive a much harder bargain with drug companies;” the US allows drug companies to set their own prices.
This is all true as it stands. I read the entire article carefully looking for more, however. In my own reading on the topic, I’ve learned several things that the editors do not consider but which, in my opinion, are extremely important to know. For starters:
- It is government legislation that stops drug companies from charging astronomical prices for drugs that people’s lives depend on. While I will deal with this more specifically below, it is important to realize that the “other countries” mentioned control drug prices, and reign in drug companies, through legislation. When the authors say that the US “allows” the companies to set their own prices, it means that we citizens, through our elected representatives, have made laws that “do” the “allowing.” The “allowing” does not come from some shadowy government bureaucracy or by magic: it comes via deliberate law-making.
- When the editors talk about “other countries,” it would be extremely helpful for Americans to know which countries are being discussed – and how many. Americans might be truly shocked to know that there are at least two dozen countries – our peers, other advanced democracies – that can be cited. The European Medicines Agency (EMA) is the regulatory agency not only for the 28 (soon to be 27) member states of the EU but also Iceland, Leichtenstein, and Norway. The “EU has developed a single market through a standardised system of laws that apply to all its Member States. The same rules and harmonized procedures apply to all the 28 Member States regarding the authorisation of medicines and the supervision of the safety [of] medicines.” With regard to pricing, “Once a marketing authorisation has been granted, decisions about price and reimbursement take place at the level of each Member State considering the potential role and use of the medicine in the context of the national health system of that country.”
The AARP article goes on to rightly discuss the issue of patent rights: “The supply of a newer medicine . . . is controlled entirely by the drug manufacturer that holds the patent rights. That gives the manufacturer a monopoly on the drug for the 20-year life of the patent.” What the authors do not then go on to explain to the American public is that the patent laws changed significantly – by conscious, deliberate federal legislation – in the 1990s. Robert Reich, in Saving Capitalism, explains that, before this time, the Patent Office and the courts determined that “products from nature could not be patented.” The changes made it possible for the Patent Office to renew patents for lifesaving drugs “on the basis of small and insignificant changes to the original drugs that technically make them new and therefore patentable. . . [P]harmacies cannot substitute generic versions of a brand-name drug when it has changed in even the most minor of ways.” As the authors of the AARP article note, the companies “have become adept at coming up with strategies to extend their monopoly on a drug beyond” the patent expiration date. Reich puts this even more bluntly: “[D]rug companies pay the makers of generic drugs to delay their cheaper versions,” resulting in enormous profits for drug companies for both original and generic drugs (Reich, 25). What the AARP authors do not say is that these “pay-for-delay agreements” are banned in Europe! Americans need to be aware of all this!
The AARP article includes a very illuminating chart entitled “The Profits: How pharmaceutical earnings compare” – “operating profit margins of some prominent drug manufacturers, compared with other successful and well-known American companies.” Amgen, Abbvie, Johnson & Johnson, and Roche Holding all ranked higher in 2016 than Alphabet, the parent company of Google!
What is also important for Americans to know – when they are often having to decide between paying for their lifesaving drugs instead of their rent or food for their children – is that laws enacted since the 1980s allow top executives, including those of drug companies, to cash in their stock options without disclosing them to the public. This is a reversal of practices that had been in place since the New Deal! (Reich, 104-05) This practice, along with other practices that large corporations pressured Congress to change, enable CEOs of drug companies to depart from their companies extremely wealthy even when those companies lose money; large-scale failures have thus been highly rewarded over the past several years. As can be deduced from Reich’s observations, we the taxpayers suffer great harm: “corporations deduct CEO pay from their income taxes” (Reich, 105) so we end up making up the difference. In effect, we subsidize CEOs’ stunning salaries.
The AARP authors address the standard argument of the pharmaceutical companies that drug prices are so high because the cost of drug development is so high. The article supplies some important statistics; for instance, drug companies spend up to $2.6 billion over 10 years to bring a drug to market. However, as the article points out, 90 percent of these companies “spend more on marketing than on research;” most “have big budgets for lobbyists;” and companies “increasingly focus on products that can generate the highest profits” rather than on products needed most by consumers. The article further notes that companies pursue so-called “orphan drugs,” those that target diseases that “afflict fewer than 200,000 people” because they are so lucrative. The problem is that our government – our laws – “supports orphan drug development with tax breaks and other incentives,” resulting in billion-dollar profits to the companies.
While all this is a good start to the discussion, it would have been even more helpful if the authors had explored these additional questions:
- How do our peer nations compare with the US in length of time for drug development? What can we learn from them?
- How do our peer nations compare with the US in total costs of development?
- What do EU and other countries do vis-à-vis marketing? The EMA document cited above lays out procedures for marketing, and the regulations apply to all member states equally. The laws address not only safety but also transparency.
- How did our laws around “orphan drugs” come about, and how can they be reversed or modified? In the EU, there are incentives for development of these specialty drugs; our legislators and the American public need to know that such incentives are in place and that they can be used as models.
Finally, the AARP editors provide a number of ways that we consumers can help lower our drug costs. These are helpful to some extent. However, once again, the American consumer has the burden of solving our own problems – problems that are not our fault. They are instead created in large part by highly-compensated CEOs, lawmakers who receive much financial support from prosperous companies (the article notes that $19.8 million was donated to politicians by drug company PACs and employees in 2016), and laws that have been passed by those lawmakers over several decades. In other words, instead of focusing on the creative and communal ways in which our peer nations have managed the drug issue, the AARP authors succumb to the fallible American tendency to look at the issue and potential solutions from a hyperindividualistic perspective that only goes so far.
Observations and Actions
I hope it is obvious from my analysis and critique that the problem of high drug costs is not impossible to solve – other nations are tackling the overall drug issue in highly competent, practical, workable and successful ways. Because of what these nations do, they are not facing the same challenges that seem so intractable to us.
Let us think seriously, then, about the following:
- Out-of-control drug prices in the US are outrageous and harmful to millions of Americans (perhaps all Americans, ultimately) – but not inevitable.
- Our elected representatives, especially at the federal level, should educate themselves on the many ways in which the EU and other advanced nations successfully manage the drug issue. The AARP article notes some legislative initiatives being proposed in Congress, and those are important, but Congress also needs to learn from other countries’ laws, incorporate them into their own proposals, and help educate the public on the success of these laws in our sister countries.
- The media, including organizations such as AARP, must use their investigative resources to familiarize themselves with and then educate the American public about other nations’ initiatives.
- We citizens in turn need to keep up our critique of our politicians, as many Americans are already doing when they are adversely affected by outrageous drug prices. What we can and must also do, however, is to rid ourselves of the notion that drug company CEOs’ enormous wealth is “deserved” because these leaders are talented and effective. As we can now attest, much of this enormous wealth derives not mainly from talent or effectiveness but from laws, practices and tax incentives. In other words, their wealth comes on the backs of struggling Americans – and is immoral, unethical and unnecessary.
The American pharmaceutical scene, in short, is an anomaly among advanced democracies. It does not need to be this way – and it is time it stopped.
AARP editors, “Why Drugs Cost so Much.” AARP Bulletin, Vol. 58, No. 4 (May 2017) 16-24 and online.
Reich, Robert B. Saving Capitalism: For the Many, Not the Few. New York: Vintage Books, 2015.