Drug makers are under fire as the $84,000 price tag on a new hepatitis medicine has galvanized the debate over prescription drug costs. But the pharmaceutical industry could be mounting a much stronger defense if it weren't haunted by its support for government health care.
At the heart of the latest controversy is Sovaldi, a miracle drug introduced this year and manufactured by Gilead Sciences, Inc., that cures 90 percent of Hepatitis C cases, a condition that affects 3 million people. The catch: the drug costs $1,000 per day, and thus the price of the full 12-week treatment exceeds that of many luxury cars.
The sticker shock has triggered a shaming campaign, led by the insurance industry, that is part of a broader economic and moral debate over what is a fair price for drug makers to charge for miracle medicines.
Some added context for this is that between 2010 and 2012, the growth of spending on prescription drugs had been nearly flat, as blockbuster drugs such as cholesterol medicine Lipitor lost their patent protection and became available in generic form.
Insurers argue that the rise of expensive specialty drugs such as Sovaldi will cripple efforts to contain the growth of health care spending. In 2012, prescription drug spending was $263.3 billion in the U.S., representing about 9 percent of overall health care spending.
In a statement defending the industry, John Castellani, president and CEO of industry lobbyist the Pharmaceutical Research and Manufacturers of America, or PhRMA, argued, “It is penny wise and pound foolish to focus solely on the price of a new medicine while completely ignoring the value it provides to patients and the health care system broadly.”
He said that curing Hepatitis C could save $9 billion a year, “by preventing expensive hospitalizations and avoiding thousands of liver transplants that routinely cost over $500,000 each.”
It’s important to recognize that drug makers who develop innovative medicines are assuming the risk of failure, absorbing the cost of research and going through the long regulatory approval process. Only then can they profit from the drugs during the window when they have patent protection.
That having been said, PhRMA is in a weaker position to make such free market arguments given how the industry has enriched itself by pushing policies that expand government — at taxpayers’ expense.
Fearing that Obama's health care law would empower the government to negotiate drug prices and allow the re-importation of prescription drugs from Canada, PhRMA cut a closed-door deal with the administration (later revealed in emails obtained by a House Energy and Commerce Committee investigation) that protected them from such action. In exchange, PhRMA backed Obamacare and even spent millions on ads supporting it.
It’s one thing for PhRMA to make economic arguments attempting to justify charging $84,000 for a prescription drug treatment in an environment in which it is more broadly defending free market principles. But it’s much harder when the industry has aggressively lobbied to receive more benefits from taxpayers.
PhRMA has cut deal after deal with politicians who believe that health care is a right, and by default, that miracle drugs are effectively public goods. It’s only a matter of time before they hang drug makers with the rope that has been provided to them.