Whether Drug Prices Should Be Regulated

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Even though drug manufacturers often cite R&D costs when defending high drug prices, “the connection isn’t exactly true”, says Aaron Kesselheim, an Associate Professor of Medicine at Harvard Medical School. “Most of the time, scientific research that leads to new drugs is funded by the National Institutes of Health (NIH) via federal grants”. Indeed, the NIH funded $31.1 billion in 2015, which is nearly 38% of research on basic science that is paid by the government (FASEB 1). Moreover, some government-funded dugs have been priced astronomically by pharmaceutical companies. For instance, Gilead acquired the exclusive rights on a medication that treats hepatitis C sofosbuvir after the initial research occurred in a publicly funded university and now a 12-week treatment costs $84,000 to consumers (Almendrala 2). It is the public transfers research Bayh-Dole Act that allows federal funding academic labs to sell off their exclusive rights of intellectual property to private companies. Although the act was passed to incentivize research and innovation, pharmaceutical companies have been using it to their advantage without any concern about consumers who technically pay twice for the medicine. But Bayh-Dole Act contains march-in rights, which means that the government can grant the license patent right to another manufacturer if a patent holder sells the drug on unreasonable terms. Nevertheless, the federal government never utilized march-in rights in spite of receiving such petitions, and pharmaceutical industry lobbied heavily to ensure that it stays that way. (Thomas 6)

To evaluate the industry’s disputable argument that soaring prescription prices are necessary indication of the high R&D costs and clinical trials, drug manufacturers need to publicly disclose required information to validate such a claim. That’s why ten states have already introduced transparency bills that would entail drug companies to reveal the costs occurred in bringing drugs to the market (Sarpatwari et al.1). But since drug companies have reacted to the bill by intensely lobbying not to publish these reports, only the Vermont’s law was enacted last year. Strenuous opposition of drug companies against transparency law only reveals that there is no factual evidence of justifying inflated prices by the high cost of research and development, and drug makers just relentlessly safeguard their patent rights in order to retain high profits for its shareholders.

Critics often claim that insurance companies cover high drug prices, so there is no need to impose price control on pharmaceutical companies. But, in fact, substantial increases in prices affect insured consumers as it raises their healthcare costs through higher monthly premiums, co-pays, or deductibles. Besides, insurance companies have pointed out that there are either few or no alternatives to a medication, then it becomes a financial burden on its users. It especially affects people who have Medicare and Medicaid, as 20% co-payments of the cost of a drug can be a considerable concern for families (Tribble 3).

Moreover, there is an increasingly growing issue of drug makers manipulating Orphan Drug Act that was intended to encourage manufacturers to find treatment against rare diseases that currently affect nearly 200,000 Americans. In exchange for investing in R&D of so-called orphan drugs, drug makers receive a tax credit on R&D, federal grants’ access, and exclusive rights to sell a medication in the U.S. even when patent expires. Pharmaceutical companies have recently started focusing on developing orphan drugs: 33 orphan drugs out of 56 novel drugs were approved by FDA in 2015 (U.S. Food and Drug Administration 7). Besides, according to EvaluatePharma, the average orphan drug’s cost per patient was $140,443 last year, while non-orphan drug’s cost was $27,756, which gives lucrative incentives to drug companies to make more orphan drugs as they bring high returns (24). That’s why Kaiser Health News started the investigation to determine whether pharmaceutical companies have been abusing the orphan drug program in order to maximize their profits (Tribble 1). It discovered that many orphan drugs aren’t completely new. FDA approved more than 70 orphan drugs that were initially developed for mass-market use (Tribble 1). For instance, Tetrabenazine treatment for tremors resulted from Huntington’s disease, was used for many years as a regular drug that cost only $42.28 per bottle. Yet after it received the orphan drug status, the price of the drug went eventually up to $21,243 a bottle (Johnson 2). Furthermore, after FDA approval of orphan drugs, many companies market the medication as off-label treatment for other medical problems, thereby, increasing their revenues; for example, Merck misrepresented the evidence about cardiovascular safety of drug Vioxx and falsely promoted it before FDA approved it (Baker 4).

After the Kaiser’s published investigation report, several senators asked the U.S. Government Accountability office to inspect the abuse of the Orphan Drug Act (Brennan 1). But while drug makers manipulate the existing regulations to maximize the shareholder value, people who suffer from rare diseases are getting punished.

Ultimately, the key factor to the issues of astronomical drug pricing in the United States is part of the much bigger issue of the country - lobbying. The main reason why pharmaceutical industry lobbies so tremendously is because the government regulation regarding drug prices, patent exclusivity, and healthcare considerably affects the profits of the drug companies. In order to protect its high profit margins, the pharmaceutical industry has successfully prevented many reforms necessary to cut healthcare costs; the most successful lobbying example of the industry is precluding Medicare to negotiate prices with drug companies. As the government is the biggest spender on the medication, the Congressional Budget Office rates that federal spending on drugs make up for more than 36% of the drug manufacturing revenue (McKitterick, Soshkin, and Isakowitz 3).

Another example of how the power of special interests can influence legislation is the case of one of the largest drug company Amgen regarding a delay of price constraints on a class of certain kidney drugs (“Amgen Gets a Gift”). That specification mystically appeared in the final fiscal bill as a lot of members of Congress claimed that they were not aware of it until hours before it was approved. This alarming episode reveals a much broader issue Americans have to encounter, as it clearly demonstrates how lobbying can distort the congressional process in the U.S.

Although there are many proposed solutions of how to fix drug prices problem, it won’t be nearly easy. First, there is