Do Americans always need an entire industry to hate or complain about? Big tobacco, big banks, big insurers, big brokerage houses, big oil and energy companies, big automakers, big for-profit hospital companies, big pharma, have all been easy targets in the past. More often than not because of big profits, abuses and excesses, and safety concerns. On July 23, 2015, The New York Times fired another salvo at big pharma when it published Andrew Pollack’s piece titled “Drug Prices Soar, Prompting Calls for Justification.” The article highlights an issue that has been smoldering off and on for years: how do drug companies arrive at prices for their new products? After reading the article more carefully and thinking about the pressured state legislators who are introducing “drug cost transparency” bills, one may wonder why this issue now? The specific trigger this time may be Gilead Sciences’s Sovaldi® (sofosbuvir).
The New York Times has written about the costs of this drug before and how it is straining Medicaid budgets. This may be the most likely reason that these state legislators are asking for drug cost transparency now. The costs of the hepatitis C cure for affected California Medi-Cal patients alone would equal the total education budget for the state.
Regarding the costs of new drugs, it is reasonable to wonder if the large pharmaceutical manufacturers really know how much it costs to produce an innovative prescription drug for patients. It’s far more likely they know how much it costs to market a new drug to doctors and the public once the Food & Drug Administration (FDA) has approved it. And it’s also likely that the pharmaceutical companies know how long their exclusive marketing windows will last until their patents expire and the product can be sold generically. It’s far more easy to calculate profits and these data are readily available too investors on a quarterly and annual basis.
Perhaps it is time for Americans to ask another question: how should we continue to fund innovation? What is a reasonable rate of return for all big companies? How do we continue to provide innovative cures for patients in the absence of big pharma? What is a fair approach? There will always be another blockbuster drug available. We hope. That’s what we want: we want safer, more effective drug products for patients who suffer from disease and chronic illnesses. But we don’t really have a better way of providing the innovation in health care unless the federal government takes over the responsibility more completely. And Americans have resisted that answer – for so many industries – since the Nation’s founding.
So, back to the question the Times asked: how do drug companies arrive at prices for their new products? After all is said and done, the answer probably remains: “Whatever the market will bear.” And, what will come at no surprise, that’s pretty much what the answer has always been. [Mickey C. Smith, David A. Knapp, Pharmacy, Drugs, and Medical Care, 5th ed., 1992]
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