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Is Big Pharma to Blame for Soaring Health Costs?

Or is this the necessary by-product of new wonder drugs?


Recent headlines have decried exorbitant drug costs. No one is surprised by drugs that exceed $100,000 dollars a year or whose prices have grown at six times the rate of inflation.

But the biggest surprise at the Oct. 13 debate hosted by Intelligence Squared (Blame Big Pharma for Out-of-Control Health Care Costs) wasn’t that drug prices in the United States are higher than any other developed country. Nor was it that Americans actually pay twice for these products, both at the pharmacy counter and through our tax dollars to the National Institutes of Health (NIH) for research.

No, the biggest surprise was that presidential candidates Hillary Clinton and Donald Trump have not only talked about this issue, but agree that prices need to be reined in. At times, both sides of the debate found themselves in agreement.

Experts Face Off on Drug Costs

Addressing this issue in spirited detail at New York University’s Skirball Center auditorium were four expert panelists moderated by veteran reporter and writer John Donvan.

Neera Tanden, the Center for American Progress president who was policy director for Hillary Clinton’s previous Democratic presidential campaign, led off the argument for the motion: “Blame Big Pharma for Out-Of-Control Health Care Costs.”

Why do people hate the drug companies? In a word, it's prices. [But] drug companies need to make a profit, because otherwise perhaps they just wouldn't bother.

— John Donvan, debate moderator

She noted that pharmaceutical companies spend more on marketing than research and charge monopoly prices. Speaking about the recent EpiPen price-hike controversy, Tanden said: “You’re seeing this outrage because there is only one EpiPen.”

Also arguing for the motion was Dr. Zeke Emanuel, bioethicist at the University of Pennsylvania and a former Obama administration adviser, who noted that pharmaceutical companies’ profits are higher than those of carmakers, big oil and even insurance companies. In recent years, drug costs rose at triple the rate of hospital costs and doctor visits, he noted.

The Case of Specialty Drugs

Emanuel singled out specialty drugs as going up at much higher rates. One example he gave: Gleevec, a cancer drug for chronic myeloid leukemia.

“This disease, which used to kill people in six months, has allowed people to live a very long time,” Emanuel said. “The drug was introduced in 2001, at about $3,300 per month. It has gone up about 300 percent. No added research to the drug. No new innovation in the drug. The price just went up because the drug company had a captive audience and there was no cap in the United States.”

Further, he added, “There are multiple drugs out there on the market that cost about $150,000 per year. [They] don’t cure anyone [or] ameliorate the disease, but are hugely expensive.”

Arguing against the motion was Paul Howard, a senior fellow and director of health policy at the Manhattan Institute, a conservative think tank. He began by quipping, “Most people in the audience probably feel the same way about the pharmaceutical company as they do about a pat down at the TSA.”

Howard, who was part of the health care advisory group for Mitt Romney’s 2012 Republican presidential campaign, agreed that some patients (particularly those with serious chronic illnesses) are paying too much out of pocket for their medicines. And, he noted, we need to find a solution for that. “I’m not here to defend the industry,” said Howard.

But, he argued, if we don’t continue to innovate, we will have fewer medicines and people will suffer and die unnecessarily. Besides, said Howard,“Medicine keeps us out of the most expensive part of the medical system: hospital beds and nursing homes.”

Cost Savings Through Innovation

Howard added that if we had a treatment by 2025 that merely delayed — not cured, just delayed — Alzheimer’s by five years, over the next decade, Medicare would save close to $350 billion. Patients would save more than $220 billion in out-of-pocket costs, he added. We must consider the total cost of care, not just how much is devoted to medicines, but also how much of the increase shifts to another part of the health care system, Howard said.

“Sometimes a drug that looks expensive is going to wind up being the cheapest option for treating that condition we have,” he declared.

Expensive medicines don’t stay expensive forever, Howard pointed out. “Patents expire, prices plummet, but doctors, MRIs and hospital beds start expensive, and they stay expensive,” said Howard.

Also speaking against the motion was Lori Reilly, executive vice president for policy, research and membership at Pharmaceutical Research and Manufacturers of America (PhRMA) and a former Republican Congressional aide.

She noted that HIV/AIDS was initially feared not only for the human toll, but also for the high cost of treatment. But since combination therapy treatments came to market in the mid-1990s, HIV/AIDS death rates have fallen by 86 percent in this country.

Breakthrough in Hepatitis

Reilly cited the useful drug for Hepatitis C that has made headlines for its high price.

“Before new, innovative treatments hit the market, we were spending $30 billion a year in this country to treat patients with Hepatitis C, and those costs were projected to climb to $80 billion in 20 years,” she said. “But the new medicines took a disease that killed five times as many people as HIV-AIDS does in this country and cured it in eight to 12 weeks.”

In under a year, two additional Hepatitis C medicines came to market, and the price of those medicines fell by 40 to 60 percent. “From a clinical perspective, we’ve cured a million patients from Hepatitis C in two and a half years,” she said.

“When a brand name medicine gets approved, it can expect to get competition from another brand-name medicine in under two years’ time,” Reilly continued. “With Hepatitis C, that happened in less than a year. When competition happens, prices fall. When generic entry happens, typically, 10 to 12 years after a product hits the market, 80 percent of costs drop for that product.”

Taking Advantage?

Donvan asked Howard to respond to the idea that profit margins are so high that pharmaceutical companies could just make less money and still be OK.

Howard replied: “What other industry do you want to be more profitable than the one that’s attempting to get a cure for HIV? If you want to see investors send their money into a less risky industry — maybe software, the next Snapchat — by all means, cut the profits for the pharmaceutical industry.”

Tanden argued that other countries are paying dramatically less for medications than consumers in the United States.

Howard pointed out that the U.S. is the world’s medicine chest, producing far more drugs and far more drug research, than other countries.

“Those countries are free-riding on our investments in research and development,” he said.

Tanden agreed that U.S. consumers are subsidizing research on both ends by paying for high research dollars, and also by paying high consumer dollars. “So maybe we could have a system where we pay less, other countries pay more,” she suggested.

‘Highest Price They Can Get Away With’

In the closing arguments, Tanden stated that we need to figure out how to ensure that pharmaceutical companies have an incentive not to charge the highest price they can get away with, which is fueling the bipartisan concern we see on this issue.

Reilly weighed in. “There seems to be an assumption from the other side that anytime spending on medicines goes up, it’s automatically a bad thing. But if spending goes up because we’re curing disease and we’re bringing new breakthrough treatments, that doesn’t seem like a bad thing to me, particularly if these medicines can prevent the need to use other, more costly health care services.”

Added Reilly: “We’re going to see oncology medicines added to our war chest. Today, there are millions of patients today that are clinging to hope. I think 15 percent of our health care dollar devoted to some of the biggest and boldest advancements we see in health care is well worth it.”

Risky Investment

Howard concluded by asking the audience members to consider the following scenario: Pretend that you are Mark Cuban on Shark Tank. And someone comes to you pitching a new idea for a parking app.

“It’ll cost them $100,000. They’ll hire some coders and they’ll be on the iTunes store in a year, maybe two years’ tops. There’s no barrier to enter. You can get right out there and start earning money,” he said.

Now consider the plight of someone who wants to bring a drug to market: “It’s going to cost them, let’s say, $50 million to $100 million just to get through human clinical trials for the FDA, and then there is an 88 percent chance that in 10 years it’ll be a flop,” Howard said.

Then he  asked: “Which investment are you going to make? That is the challenge that we’re facing. The FDA is the biggest barrier here. It’s the barrier in generic drugs. It’s a barrier to more innovative medicines. We need to find ways to bring more effective medicines to market less expensively. And if we change pricing without changing how we innovate, all we’re going to wind up is with fewer drugs. And a drug that you don’t have for a serious disease is infinitely expensive because you can’t buy it.”

Prior to the debate, 33 percent of the live audience were “for” blaming big pharma and 28 percent were against. Afterward, however, the opinion switched: 42 percent were for blaming the drug companies and 48 percent were against. (The “undecideds” dropped from 39 percent to 10 percent.)

 

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