Drug Pricing: Who's to Blame?
From 1996 to 2019, the average price of insulin has increased from $21 per vial to $295 per vial. That is over a 1304% increase in the price of one of the most commonly needed prescription drugs in the United States. Insulin is used to treat diabetes, and over 100 million people in this country are either diabetic or prediabetic. That’s a 100 million people that need insulin to live, and only a small percentage of those people can afford the costs.
The NovoRapid insulin pens that cost $140 here in the US cost only $8 in Taiwan and $13 in Canada. So why are the prices of insulin so steep in the US? In his show The Patriot Act: Drug Pricing, Hasan Minhaj places part of the blame of the extreme insulin costs on the big insulin manufacturers, Eli Lilly and Company, Novo Nordisk, and Sanofi Aventis. Since their patent on insulin has an expiration date, in order to avoid competition in the market, these companies slightly alter their drug and file another patent. In other words, these companies are price fixing, which is an agreement between companies on the same side of the market to buy or sell their product at a fixed price. Because of this, when insulin prices increase, the price curve for different companies mirror each other and increase “lock step.” Once one company increases their prices, the others just follow suit.
Insulin is required by ⅓ of the US population to stay alive. And even these insurance companies above acknowledge that the prices are getting ridiculously high. But they don’t think they are the problem. Instead, they choose to blame Pharmacy Benefit Managers, or PBMs. They are the ones that negotiate what percentage of the price of prescription drugs insurance covers. So how does this process work?
For example, let's take the diabetes drug Metformin, which costs $1.61 to manufacture. If the customer paid out of pocket, he would have paid $4.00 for the drug. However, through insurance where the costs are negotiated by the PBMs, the customer would have had to pay a $10.84 copay, pocketing $8.91 and leaving the profit to the pharmaceutical companies to be only $1.93. When trying to make the jobs of PBMs clear, we get caught in a tangled web of costs and rebates for a common product that once sold for $1 per vial.
So the PBMs definitely play a big part in why insulin is so expensive. But at the same time, the high prices start at the top with the pharmaceutical companies themselves. It’s hard to tell which part of the system is more broken. But bottom line is due to the oligopoly of the pharmaceutical companies who make insulin and the drive up in cost by the middleman, people are dying because of the lack of affordability of a common drug to a disease that affects 100 million people worldwide.
Is this a fixable problem? Hasan Minhaj seems to believe that this power lies in the Congress’ ability to break patents. Although it’s never been done, it can be done in emergencies. And just the threat of breaking patents could be enough to get drug companies to lower prices. But at what point does this crisis become enough of an emergency for Congress to finally break the patent?
Sources:
https://www.youtube.com/watch?v=z7LgT4_jkLA - Drug Pricing | Patriot Act with Hasan Minaj
https://www.nbcnews.com/health/diabetes/u-s-insulin-costs-patient-nearly-doubled-2012-2016-study-n961296
https://www.pcmanet.org/our-industry/
Interesting post, Mahika! I think that insanely high drug prices pose a significant health threat to those who rely on pharmaceuticals to survive, like insulin-users as you mentioned. Just because a few pharmaceutical companies want to maximize their profit margins, low-income consumers with health disorders are forced to ration or buy less of the drugs they need. In fact, this topic was hotly contested at a Senate hearing on drug prices, where they decided to launch an in-depth investigation into how these companies choose to price their items, where this extra money is going, and whether or not there's a more effective solution to this dire issue.
ReplyDeleteSource: https://www.pharmacytimes.com/resource-centers/diabetes/rising-insulin-costs-addressed-at-senate-hearing-on-drug-prices
This is super interesting! The driving incentive for big pharmaceutical companies to increase the price is the high and inelastic demand for insulin. This constant demand allows these companies to jack up the prices, knowing that people are willing to pay for it. This is definitely a huge disadvantage for those of lower income. People are unable to pay for the medication and they are actually dying as of result. As a result, some have turned to crowdfunding on websites such as GoFundMe in order to share their stories and receive support from others. Unfortunately, money is more important to many of these pharmaceutical companies, and like you mentioned I think it's important for the government to begin implementing price ceilings for important medications like this because of its effect on people.
ReplyDeletehttps://tonic.vice.com/en_us/article/ezwwze/the-high-price-of-insulin-is-literally-killing-people
This post reminds me of what we discussed in class the other day when we were talking about whether or not companies should be allowed to conspire together and chose a price floor. Considering three major car companies, if they all decide to not go below $30, 000, they can all make more money from their cars but if someone all of a sudden charges $20, 000 their cars will most likely sell more. With insulin, it sounds like the companies are able to keep raising their prices, because all of the companies are doing it but if one were to lower their price it could help the issue.
ReplyDeleteNice post! I recently watched the Patriot Act episode about this as well. Drug pricing is an economic, political and social discussion. People don't simply debate why the cost is so high, but also how much the government should pay for medicine through health care, and whether we want a social welfare society or something more neutral on the political spectrum. I just found out that Senator Scott announced a drug pricing transparency act. The bill seeks to regulate the price transparency, consumer choice and fairness. Senator Scott is trying to limit oligopolies. It prevents insurance companies from changing the total cost of their prescription drugs for one year. In this way, the law addresses oligopolies within the insurance and pharmaceutical spheres. How involved should the government be in breaking up medical oligopolies? Do they have more of a responsibility to control oligopolies that contribute to public health compared to the tech industry?
ReplyDeleteSource: https://miami.cbslocal.com/2019/03/29/sen-scott-announces-drug-pricing-transparency-act/