Recent prescription drug price hike isn’t new, but still must end
September 30, 2015
Earlier this month, social media blew up with the story of a rich, ex-hedge fund manager, Martin Shkreli, who bought the rights to Daraprim, a drug used to treat toxoplasmosis, a parasitic disease, and increased the price by 5,000 percent. A firestorm of outrage ensued. However, the price raise, while egregious, is common practice in the prescription drug industry. This practice is just one of the tactics used by drug companies to increase prices beyond reasonable levels and make more profits.
The necessity of medicine to survive gives drug companies incredible leverage when setting drug prices. Hence, companies can often demand ridiculous prices for drugs without fear of turning away patients. This leverage has likely resulted in prices that are correlated to benefits of the drugs. The Institute for Clinical and Economic Review, a nonprofit that studies drug prices, has found that many drugs may be over priced. In a report released recently, ICER found that two new cholesterol drugs, Repatha and Praluent, should cost only a third of what their owners are charging for them given the expected value of longevity and quality of life the two drugs gave over similar cholesterol drugs. ICER is potentially trailblazing a new way of regulating drug prices in a concrete and non-arbitrary way. Hopefully, given more time and research into ICER’s methodology, a regulation mechanism could be set into place to prevent companies from setting prices above certain percentage of their drugs expected value.
Those in medical fields may argue that drug prices are so high because of the high cost of researching the drugs. While it certainly can be debated how fast a drug company should be able to recoup the cost of research, the risks and cost of research often make for-profit companies disinterested. To improve profits rather than create new drugs, many companies instead purchase the rights to old drugs, such as Daraprim, a 62-year-old treatment, and increase the price often on the order of 500 percent or more. A similar tactic used is releasing an old drug after the patent has expired with slight changes, allowing them to re-patent the drug. This practice often suppresses competition from generic drugs and allows companies to increase the price on the old drug. Both practices have helped cause drug prices to increase by 127 percent since 2008.
The accelerating rate of increase in medication prices threatens to further balloon healthcare costs in the United States. Without policy measures that regulate how much drug companies can charge for their drugs or stricter patent laws that prevent companies from re-copyrighting old drugs, there is little to avert this trajectory.
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Email Shiva Darshan at [email protected]