Congress Has a Little Drug Problem

Congress Has a Little Drug Problem

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The Congressional committee that recently demanded Martin Shkreli’s appearance must have hoped to spotlight a smug jerk responsible for the outrageous prescription drug pricing that we’re all up against. Of course there are lots of Shkrelis running drug companies, but most are shrewder and less brash, and might not make for such good theater.

Rep. Elijah Cummings (D-MD), one of the Committee’s questioners, seemed to think that his witness could move healthcare forward by disclosing the machinery of the drug sector’s excesses. “The way I see it, you could go down in history as the poster boy for greedy drug company executives or you could change the system. Yeah, you.”

Excessive treatment and cost are at the core of the entire U.S. healthcare crisis. The fact that other societies and a few innovative firms here consistently deliver equal or better quality care at dramatically lower cost betrays the idea that conventional U.S. healthcare is necessarily superior or even appropriate.

Every part of healthcare is guilty, but the pharmaceutical sector is a case in point. An open record of lobbying spending and what pharma has obtained from Congress makes clear that its contributions have worked to that sector’s economic advantage and against the interests of American patients and purchasers.

Open Secrets data show that, between 1997-2015, Congress accepted $3.3 billion in campaign contributions from the pharmaceutical/health products sector, 43% more than they received from insurance, the second most politically influential industry. That averages out to about $181 million annually over that 18-year period, or a stunning $411,000 per legislator per year.

These numbers are chump change compared to the drug market. At $985 per person in 2011, the U.S. has the world’s highest drug spend by far, more than double what other developed countries pay on average ($483) for approximately the same benefit. In 2015, the U.S. had aggregate prescription drug sales of $374 billion. In other words, we spent about $190 billion more on drugs last year than other industrialized countries would have for the same population. And this figure is deceptively low, since 20-30% of Americans remain uninsured or underinsured, and can’t afford drugs and other treatments.

This excessive drug spending was stoked by a lobbying investment totaling only $235 million in 2015, or just 0.06% of that year’s total prescription drug spend. Evidently, when an industry sector works at scale, policy can be influenced incredibly cheaply.

But policies forged in the special interest yield shamelessly conflicted mechanisms. For example, once a drug is approved by the Food and Drug Administration (FDA), the drug’s manufacturer can set virtually any price it wishes without a rationale tied to the cost of development, the drug’s value to patients, or what is paid in other countries for the same drug. How does that play out? Consider Gilead’s cure for Hepatitis-C treatment, Sovaldi. At $1,000 per pill, the cost has wreaked havoc on health plan budgets and dramatically curtailed patient access to the drug. Meanwhile, the same drug is available for $11 per pill in Egypt and $4 in India. A related head scratcher is Congress’ prohibition against Medicare negotiating drug prices. The government must pay whatever price is demanded on behalf of millions of subsidized patients using that drug. From the vendor’s perspective, it’s hard to imagine a better deal than having the purchaser let you set any price and then unreservedly guarantee that the bill will be paid.

Drug policy has become emblematic not only of the larger healthcare cost problem, but of a deeply dysfunctional Congressional practice that threatens patients’ interests and our nation’s long-term economic stability. Candidates Clinton, Sanders and Trump have vowed to address Medicare’s prohibition on drug pricing negotiation. Anticipating a challenge to the status quo, pharma has already launched a well-funded campaign that targets 7,000 policy influencers. The worry is that, unless something changes, we already know whose side Congress is on.

The Shkrelis.

Brian Klepper is a health care analyst and a Principal in Health Value Direct.

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15 Comments on "Congress Has a Little Drug Problem"


Member
Nurse Richard
Mar 20, 2016

Brian Klepper’s piece “Congree Has A Drug Problem” does a great job revealing the hypocrisy of a congress pretending to look out for citizens while pocketing money from the predators. However we do not need more deception about the current problems of our health care NON system. The problems are not “Excessive treatment and cost”. The problems are lack of equitable health care for all, in fact the real problem is the under treatment or complete lack of access to treatment for most people. The disparities are exacerbated by greedy profit driven “steak” holders such as the pharmaceutical, insurance, AMA, etc. that inflate costs. These elements have steered care away from the most effective and efficient preventative care models to reactive treatment strategies that can string along their revenue stream. Congress and our elected officials need to be roasted for their selling out the American people and the public option. We must understand the problem if we hope be able to fix it.

Member
Mar 18, 2016

This says, Thanks also to Mr. B. Klepper for that this i of his said columns on that that’s so also of Congress with it now here STILL recounts also that ” ‘ ‘ Congress Has A Little Drug Problem ‘ ‘ ” for himself, for ANYONE whoever accepts also that this even says also, Thanks also to Mr. B. Klepper for that this i of his said accounts on that that’s so also of Congress with it now here STILL recounts also that ” ‘ ‘ Congress Has A Little Drug Problem ‘ ‘ ” him/herself for him/herself, for fans, for readers, for others also and even for us, too…. However, this even says also, Thanks also for that ANYONE whoever pays attention REALLY closely WOULD notice also that it is BOTH SLOPPY management and EXCESSIVE treatment and costs, NOT POOR markets, that put this so that this i of his said columns on that that’s so also of Congress with it now here STILL recounts also that Congress also DOES for himself, for ANYONE whoever accepts also that this even says also, Thanks also for that ANYONE whoever pays attention REALLY closely WOULD notice also that it is BOTH SLOPPY management and EXCESSIVE treatment and costs, NOT POOR markets, that put this so that this i of his said accounts on that that’s so also of Congress with it now here STILL recounts also that Congress also DOES him/herself for him/herself, for fans, for readers, for others also and even for us, too….

Member

Fair comment if the intent is only to focus the reader on the injustice of what you must consider an industry lead economic profit? As Pharma launches their ‘well-funded campaign’ the point to be made is that industry margins are really quite ‘normal’ once adjusted for all the cost elements, a few exceptions not withstanding.

Member
Mar 18, 2016

Indeed, as left-leaning historian Gabriel Kolko showed (“The Triumph of Conservatism”), regulations always benefit the big players and are frequently introduced at their behest. It was true in the 1890’s and it continues to be true today.

Member
Mar 18, 2016

Dr. Parker,

Since there is no known or documented relationship between US drug pricing and the costs association with production, I’m not sure how your argument is meaningful in this context.

Brian

Member

Brian, I’m linking the notion that large consolidated entities operate at lower cost points due to their economies of scale. Hence, smaller entities would have greater scale challenges and therefore a higher price per unit of production. This then leads to the price regulation comment.

Member
Mar 17, 2016

Dr. Parker,

You state definitively that “price regulation…is not the answer” and that it “will hurt the small business disproportionately and further the problem we seek to solve.” You don’t offer any detail to support your conclusions. Mind doing that?

Thanks.

Brian

Member
Mar 17, 2016

Michel,

Three points. First, the term “purchaser” as I’ve used it here refers not to the health plan but to organizational health care purchasers like employers and unions. In this context, while you’re right that patients delegate negotiating responsibility to the purchaser, the purchaser does indeed have a strong financial interest in the outcomes.

Next, health plans or “payors” – even ones like Kaiser – typically own stakes in PBMs and have a financial interest in drugs (and everything else) costing more. Quite often, they add an additional margin on the drug pricing, though they’re almost never transparent about this.

Finally, you give us too much credit for pharmaceutical altruism, when in fact we’re just being had by the drug industry. As a general rule drug markets in other countries are profitable for the drug sector. If they weren’t, the companies wouldn’t be there. So the fact that the US market is more profitable doesn’t mean that we’re subsidizing them, but that we’ve been easy enough to co-opt for even higher rates.

Hope this is helpful.

Brian

Member
Mar 18, 2016

Brian, thank you for your reply. In turn, if I may…

If indeed, you meant employers and unions, I don’t see them having any direct interest in negotiating drug prices. For example, employers (as such) are concerned about rising healthcare costs but deal with them by keeping wages down. Also, having a financial interest in the outcome is not the same as being in a position to negotiate. Similarly for unions, I don’t see how they could negotiate drug prices down, or even have a direct interest in the matter.

Kaiser may have a stake in PBM’s, but they are a pre-paid health plan. In theory, they should have all the incentives in the world to negotiate drug prices down, and if they don’t, it’s really a tale of the absurd and renders any possibility of correcting the problem even more hopeless.

Finally, I concede that pharma makes a profit in the rest of the world, but that doesn’t change the fact that the different parts of its global operations influence one another. A change in their financial interests in one part will affect how it behaves in another. Again, I am not hereby making any specific recommendation, but simply alluding to the truism that policies in complex systems will likely have unforeseen consequences.

Thank you!

Member

Industry consolidation, job loss and transfer, decreased innovation, technology based automation and increased transfers of government favors seem to all go together? But I’m quite sure price regulation as is being intimated in this blog post is not the answer. Big industry and government have become bed mates and the end product seems to be the loss of a middle class through the loss of small business. Price regulation will hurt the small business disproportionately and further the problem we seek to solve. Transparency, boycotts, and prosecution of illegal behavior may be as good as it gets, short of revolution? We each have the responsibility to be an engaged electorate and should support term limits of our elected officials and ongoing individual accountability from them for their voting.

Member
Mar 17, 2016

“An open record of lobbying spending and what pharma has obtained from Congress makes clear that its contributions have worked to that sector’s economic advantage and against the interests of American patients and purchasers”

As you note, patients and purchasers are not the same, and the former have delegated their ability to negotiate prices through market mechanisms to the latter. So we’re left with the question of whether pharma is acting against the interests of the purchasers.

As you imply, the added twist is that the purchasers are not themselves buying drugs using their own resources. They are bureaucratic intermediaries who are supposed to defend the interests of those who provide the money (employers, tax payers, etc…).

Mechanisms to keep intermediaries accountable to that task are poor, as you make the case regarding lobbying efforts in Congress. But this story from a year ago (pre-Shkreli and Gilead) shows that even private organisations like Kaiser Permanente aren’t always able up to the task. This may partly be due to bureaucratic incompetence in any large organization, so it is conceivable that the problem in Congressional problem goes beyond the effect of lobbies. http://www.latimes.com/business/la-fi-lazarus-20150306-column.html

It is true that in other countries, governments have been able to negotiate lower drug prices. But given that we are dealing with multinational drug companies, in a sense, US expenditures on pharma are subsidizing the rest of the world. If the US reduces its expenditures dramatically, that will likely have repercussions worldwide. The actual effects may be difficult to foresee. (I’m not advocating for or against any particular policy).

Admin
Mar 16, 2016

A good start might be for CMS to begin the negotiating process by publicly posting prices that drug companies and providers are charging and apply public pressure

This doesn’t mean put stuff in a database that nobody knows how to use

It means real transparency

Member
William Palmer MD
Mar 16, 2016

Some ideas…darn!…all require Congressional approval:

We could have monopsonic purchasing by government or oligopsonic purchasing by branches of government.
We could have shortening of patent protection.
We could have a patient purchasing cooperative–like an actually effective AARP– that would help with #1.
We could insist that drug patents be shown to be useful before marketing is permitted. Patents are supposed to be novel, unintuitive, and useful before the temporary 20 year monopoly is granted. Too often, the public pays for post-market research to discover full usefulness.
We could allow purchase of specific foreign drugs after proper vetting and investigation.

Member
Mar 16, 2016

Ms. Clinton, Mr. Sanders and Mr. Trump all promised that they’d allow Medicare to negotiate drug prices. But that’s easier said than done when they’d have to get Congress’ buy-in. As we already nailed down, Congress is utterly bought-off by the drug industry.

One approach is for business health collaboratives that seek to be activist, like the Health Transformation Alliance, to campaign for value-based pricing or other methods that tie pricing to understandable methodologies. To be effective, they’d have to be willing to say no to drugs that have stratospheric price tags. In other words, it would take a thoughtful, orchestrated effort by a group with significant collective purchasing heft, and that is able to project its demands both into the marketplace and into policy.

I doubt seriously that Congress will muster the moral fiber or genuine devotion to the national common interest to take meaningful action on this.critically important issue. That’s certainly what Pharma is counting on. And it won’t happen on the state level because the state legislators are equally bought off.

What remains is for the pain to become so intolerable that purchasers eventually refuse to buy at those levels. Then the negotiation process can begin.

Admin
Mar 16, 2016

Brian

This is an area you’ve tracked closely for years. As you look at the negotiation plans presented by each of the three candidates, do you see any differences?

Reasonably, if we can set aside politics – which is impossible really – any differences between the plans and the candidates?

Given the realities of the world you’ve described, not sure this is something that can happen on the Washington level

Why don’t we see more action on the state level?

/ j