Obamacare shook up and reformed health care in many ways in 2009. But, thanks to their largesse and influence, the pharmaceutical companies got through unscathed, with their profit streams and business practices unchallenged. Drug company profits remain remarkable by any standards. Pfizer and Merck posted earnings of 18 percent last year, and 13 percent was the pharmaceutical industry average. By comparison, Amazon and Walmart posted profit margins of around 3 percent, and General Motors, 5 percent. That may be about to change if a recently passed House bill, HR 3, can get through the Senate and past the president’s veto pen. Ominously, Senate Majority Leader Mitch McConnell has already promised to keep this off his Senate floor. He and other senators need to feel your heat.
HR 3 would allow the government to finally negotiate Medicare drug prices, cap price rises that exceed inflation, cap out-of-pocket costs for Medicare beneficiaries and speed the release of generics, in all saving us about $450 billion per year. Currently, Americans pay twice what the rest of the world pays for their drugs, drugs that are increasingly manufactured overseas, where they are far cheaper to buy. According to Food and Drug Administration estimates, 80 percent of active drug ingredients and 40 percent of finished drugs are made overseas, primarily China, where oversight and safety protection are weak.
Drugs are expensive for consumers and getting more so. They comprise 16 percent of our total health care spending, and this spending sector is rising faster than any other, including hospital costs, physicians’ costs, and technology. While the overall rate of inflation is about 2.1 percent, drug prices are rising at twice that across the board, and four times that for the most popular drugs. Drug research and development might be expensive, but those profit margins tell us the drug companies still do very well. Drug research and development costs are estimated at $80 billion per year, but just the top 20 drugs generate $120 billion a year.
Price controls are what we need. We are almost alone in the world in not having government oversight not only of prices and but drug research as well. Why should the government have a say on what drugs are produced? Because your life might depend on it. In the U.S., a disproportionate amount of research and development focuses on niche drugs with a limited market but high potential for profit. We have chemotherapeutic agents that target rare cancers and cost hundreds of thousands of dollars for a course, while at the same time people cannot afford the basic drug treatments that make a difference for the majority of the population.
When insulin was patented in 1922, the inventors refused to put their names on the patent because they believed insulin should belong to the public. One hundred years later there is still no generic, and insulin prices continue to soar beyond reach of many.
The plain fact is drug companies can charge whatever they want, regardless of cost or profit. They are also free to ignore public need. Right now, for example, we have a slowly developing antibiotic emergency. Antibiotic resistance is increasingly a problem because it is no longer lucrative to develop new antibiotic classes.
Drug companies provide us with vital medicines, but many are rapacious in their conduct, and you and I pay the freight. Their focus on profit keeps prices high and their attention on high-revenue drugs of limited value. I see people every day who can’t afford their prescribed medicine. Twenty five percent of patients cannot afford what they need. HR 3, the Elijah E. Cummings Lower Drug Costs Now Act of 2019, does not solve all of these problems, but asserting the public interest through cost containment is an important start. The Senate should also be focused on the public good, but it won’t be without big public effort.
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