It is no doubt that revolutionary prescription drugs have made a tremendous impact on the lives of millions, curing illnesses and lengthening and improving our quality of life. However, the United States is currently plagued by a major problem of prescription drug prices, especially by those of specialty drugs. Even as the prices of most goods and services have maintained a steady pace, the cost of drugs, however, have drastically escalated.
Analyzing economic policy actions and examining major case studies, this paper will seek to show that the decision of profit driven pharmaceutical companies to drastically increase the price of specialty drugs to be wicked . It is a clear breach of ethical values and even violates our natural rights; it has become an increasingly significant and widespread public health issue that is not only entangled in the lives of those who are suffering, but also requires the attention of the government and those in the general community. Drug price growth of 15% and spending growth of 30% per annum per person are pushing overall health care costs above predicted GDP growth for the years 2015-2016. Specialty drugs made up 1% of prescription drugs prescriptions written but are responsible for 25% of drug spending in 2013. Spending on these drugs are growing faster than any other kinds of drugs and is expected to account for more than 60% of all drug spending in 2017.
A fellow classmate introduced this controversial topic with a specialty drug called Daraprim and concluded that specialty drugs are inelastic, meaning the price change will have little effect of the Quantity Demand. Monopolized by the pharmaceutical giant Turing pharmaceuticals who raised the price of the drug from $13.50 a pill to $750 (5000% increase) overnight, Daraprim is used to combat a disease caused by the HIV/AIDS weakened human immune system. Profit minded individuals and companies declare patents and suddenly hike up the prices, often putting the continuous group of specific consumers in a position to either pay what is demanded or go without.
The issue can now be focused not simply for that drug companies demand deadly prices for their drugs, rather that these drug companies take advantage by cherry-picking which drugs can sustain large price increases. This is the main motive of company acquisitions in the first place. Additional to taking advantage of the inelasticity of specialty drugs, the drug makers have been thanking the Food and Drug Administration’s policy of “market exclusivity”. They are regulations intended to allow for their maximum profits to cover research and developmental costs. However, these “exclusivity regulations”are being exploited through tactics called “evergreening”. This loophole allows the companies come up with a new patent with very miniscule alterations to the drug, in order to claim exclusivity rights for the next 5-12 years.
In reality, it eliminates competition and marks specialty drug companies as the sole suppliers.Transparency, honesty and further research enforcement are also major problems that needs to be addressed. These top pharmaceutical companies enjoy the benefit of the absense of regulations mandating the reporting of their developmental costs and other expenses.
Companies claiming their mission as continuously developing and innovating new drugs through research are actually deceitful. For example, Turing pharmaceuticals, acting as the supplier, Daraprim is bringing in a Total Revenue (TR) of $400M annually from the 5,300 bottles they sell at $75,000 per bottle. A leaked email exchange stated the drug’s Total Profit to be $392M, leaving only 2% as the costs for research and development. This greedy and faulty motivation is not present only with Turing pharmaceuticals, as 9 out of the top 10 biggest specialty drug companies spend 50% more on marketing and advertising than research and development. Further analysis of financial records and transcripts show that hudge funds and private equity firms have direct and indirect links to driving up the prices of pharmaceuticals across the country. Out of the 25 specialty drugs with the fastest rising prices over the years 2015-2016, 20 are owned or have been bought by firms focused as hedge funds, private equities and venture capitalists.
Even the new acquirer of Turing pharmaceuticals, Martin Shkreli, was the former CEO of a hedge fund firm.Drastic changes in the price of prescription drugs, especially specialty drugs, will have a tremendous spillover effect on another risky side of the market: healthcare coverage and insurance companies. These incredible specialty drug prices may lead to the increase in premiums or even force private companies from opting out from covering any expenses of the medication. If they do choose to aid insurers, insurance companies will also highly like to move these medications from lower tier coverages, where you used to pay $10 or $15 co-pay, to higher tier co-pays of up to numbers in the hundreds. Daraprim patients may be even forced to pay $300 per pill under the lowest coverages. To examine the effect of these changes on the consumer, they will be left with two options.
Because most of specialty drugs are not cures, but rather treatments, patients taking these drugs have and will continue to absorb them, further enforcing the products as inelastic demands. Consumers’ lives depend on these specialty drugs and will have to buy it regardless of price. The most impacted group of people will be the lower income families, increasing the product’s opportunity costs of daily expenses like food and rent. Annual costs of specialty drugs like Daraprim for consumers could range anywhere between $336,ooo to $634,000. Many families do not even earn enough income to match the prices, and thus will be faced with the spiked insurance coverage costs.
Second option is one of unlikeliness and tragic, where if consumer cannot afford it at all, their health conditions will deteriorate and potentially lead to death. It is important to measure all effects of this change: GDP growth, hedge-fund backed greedy companies, choiceless customers, and breach of ethics. The ethical issue is that GDP growth and profit should not be done at the expense of thousands of deaths, especially when it can be avoided. The chief executive of Turing Pharmaceuticals, Martin Shkreli, himself even said that they raised prices to make a successful and profitable company. Pharmaceuticals should not be conceived as normal market goods for a wide range of reasons.
The right to live a healthy live is part of our natural rights that we deserve, and drugs cannot be seen as market goods especially when they are necessary for our health. Simply put, this level of profit is no means of inducing innovation or promote better lives. We should not cause any more damage or harm to those already suffering due to their medical conditions. Many risky solutions are currently out there, but the most effective and sound method is the creation of competition among specialty drugs. The Food and Drug Administration should actively go out and look for other companies (even foreign) willing to develop and produce similar products and put it on a fast track through the official approval process.