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The truth behind why Daraprim can cost whatever its CEO wants it to

Five reasons drug companies are getting away with charging a fortune for needed medications.

The truth behind why Daraprim can cost whatever its CEO wants it to

A greedy, cocksure CEO set off a nation of people tired of mysterious and unchecked drug pricing.

Have you ever suspected that drug manufacturers have been given complete license to charge whatever they want?

You wouldn't be wrong.


Since he got us talking about this, we have to thank Turing Pharmaceuticals CEO Martin Shkreli. He raised the price of the drug Daraprim from $13.50 to $750 per pill.

The justification for the cruel hike?

"It's a more appropriate price."

GIF from CNBC.

What does that even mean? How does a drug manufacturer decide what is an appropriate price?

Well, there are a lot of missed could-be checkpoints in the American health care system that give manufacturers utterly unfettered license to charge whatever they decide.

A quote from The Economist puts into sharp perspective just how ambiguous the process is: "One economist at a closed-door session of pricing experts at [the American Society of Clinical Oncology] dryly remarked that she could find no economic theory to explain how companies price their drugs."

As Jessica Wapner, a researcher and writer on biomedical issues, puts it in her blog: "Drugs cost what the market will bear. It's that simple. Drug prices are set at whatever the market will bear."

Here's why.

Price Gouge License #1: Pharmaceutical companies can advertise directly to Americans, unlike in many other countries.

Image by Pfizer.

In the 1980s, pharmaceutical companies were growing tired of doctors being the gatekeepers between patients and newly available drugs. The first commercial marketed to the general public was in 1986 for Seldane. The profits for Seldane soared beyond anything the marketing team had imagined, and other companies soon followed suit. And in 1997, the FDA further loosened its rules on television ads for prescription medicines, which truly opened the floodgates.

FUN FACT: The only two developed nations that allow this kind of "direct-to-consumer" drug advertising are the United States and New Zealand. It is specifically banned in other countries.

Price Gouge License #2: The pharmaceutical industry has a distinct lack of competition, and in fact is monopolistic by design.

Innovation needs to be rewarded, goes the reasoning. And that point is easy to see. Without some incentive, there are a lot of lifesaving and quality-of-life-changing drugs that would never have been invented.

The good old days. Image via March of Dimes.

But it also stands to reason that innovation can be rewarded at scale and for a finite time, not at ever-increasing margins forever and ever. That's just not sustainable, and it practically begs for some intervening agency to act. As drug companies look for more ways to expand their profits each year — 73% of Americans polled in 2015 already think drug prices are too high — something has to give. Profits can be had, and even attractive ones at that, without carte blanche for the kinds of excesses we're seeing:

"Gleevec, from Novartis, possibly the greatest cancer drug ever invented, cost $24,000 a year when it was introduced in 2001; now it costs $90,000 per year, a quadrupling in price." — "60 Minutes" via Forbes, 2014

FUN FACT: According to a Kaiser Foundation report in 2005, 10 pharmaceutical companies accounted for 60% of U.S. pharmaceutical sales in 2004. It's as if a cluster of multinational corporations have an unwritten understanding that they can just stay in their lanes and get while the getting's good.

Price Gouge License #3: The complicated insurance setup in America gives manufacturers an advantage versus a single-payer situation where prices can be negotiated.

Image via iStock.

Other countries with socialized, single-payer health care systems are able to negotiate prices with drugmakers. Since all the power is collectively concentrated in the one single-paying entity, it forces the drug companies to play nice — or at least act in good faith.

FUN FACT: In 2003, a new act meant to "modernize" Medicare and bring prescription coverage into the mix prohibited Medicare (the largest customer in the American drug industry) from being able to negotiate prices with drug companies.

Price Gouge License #4: There are complex, private pricing strategy sessions that don't get revealed to the public.

We all know what happens when the process of how the sausage gets made never sees the light of day. It can result in some pretty rotten stuff being channeled to consumers.

But Jessica Wapner sheds a little light on what factors come into play in these sessions:

  • How many patients are buying the drug
  • How many are likely to be insured privately or through the government, or are uninsured
  • Length of an average treatment course on the drug
  • How high the stakes are for what the drug treats (desperately needed or only mildly beneficial)
  • How many years the drug will have exclusivity in the market (meaning no generics)
  • Budgeting for patient assistance programs ("If you can't afford your medication, drug company X may be able to help")

That's right. Those drug assistance programs aren't a kindly, out-of-their-own pockets, benevolent gesture. The companies get their money for them — they just tack it on top of what they're already charging.

FUN FACT: There are special forecasting companies that help drug manufacturers evaluate the field and arrive at complex equations regarding prescription prices.

Price Gouge License #5: Many consumers are shielded from the reality of drug prices because of insurance.

That means they keep buying the drug even if their copays go up (making concessions in other parts of their budget as long as they can), which reinforces to the manufacturer that their pricing practices are working. People will just pay it. They will find a way. And though some can't or don't find a way — and sometimes wind up giving up lifesaving drugs out of financial defeat — the sheer numbers don't usually rise to the proportions needed to signal to drug companies that they've made a pricing error.

Because they're still making a profit.

The highest performers in the health technology category in 2015 were Pfizer, Merck, and Johnson & Johnson.

Image via Forbes with permission.

Is there any good news out of all of this?

Yes! Increased attention on drug prices during the last year is culminating in a lot of "we're not gonna take it" talk from politicians and the media. President Obama is attempting to get Medicare negotiation rights for the most expensive drugs.

And I'll say it again: We should thank Martin Shkreli for his severe overreach in pricing Daraprim because it refocused the nation on a huge problem we've all lived with for far too long. I doubt he's very popular with his industry brethren right now — they avoided pitchforks for a long time before he came along. And in response to the public's backlash and, I'm personally betting, pressure from within an industry anxious to avoid intervention, Shkreli did finally say he will reduce the cost.

The pharmaceutical industry is banking on being too difficult to figure out for the average Joe to fight back against. That's why it's important to share this and get people thinking.

The price of drugs, if left unchecked, will eventually debilitate us.

It doesn't have to be this way.

Images courtesy of John Scully, Walden University, Ingrid Scully
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Since March of 2020, over 29 million Americans have been diagnosed with COVID-19, according to the CDC. Over 540,000 have died in the United States as this unprecedented pandemic has swept the globe. And yet, by the end of 2020, it looked like science was winning: vaccines had been developed.

In celebration of the power of science we spoke to three people: an individual, a medical provider, and a vaccine scientist about how vaccines have impacted them throughout their lives. Here are their answers:

John Scully, 79, resident of Florida

Photo courtesy of John Scully

When John Scully was born, America was in the midst of an epidemic: tens of thousands of children in the United States were falling ill with paralytic poliomyelitis — otherwise known as polio, a disease that attacks the central nervous system and often leaves its victims partially or fully paralyzed.

"As kids, we were all afraid of getting polio," he says, "because if you got polio, you could end up in the dreaded iron lung and we were all terrified of those." Iron lungs were respirators that enclosed most of a person's body; people with severe cases often would end up in these respirators as they fought for their lives.

John remembers going to see matinee showings of cowboy movies on Saturdays and, before the movie, shorts would run. "Usually they showed the news," he says, "but I just remember seeing this one clip warning us about polio and it just showed all these kids in iron lungs." If kids survived the iron lung, they'd often come back to school on crutches, in leg braces, or in wheelchairs.

"We all tried to be really careful in the summer — or, as we called it back then, 'polio season,''" John says. This was because every year around Memorial Day, major outbreaks would begin to emerge and they'd spike sometime around August. People weren't really sure how the disease spread at the time, but many believed it traveled through the water. There was no cure — and every child was susceptible to getting sick with it.

"We couldn't swim in hot weather," he remembers, "and the municipal outdoor pool would close down in August."

Then, in 1954 clinical trials began for Dr. Jonas Salk's vaccine against polio and within a year, his vaccine was announced safe. "I got that vaccine at school," John says. Within two years, U.S. polio cases had dropped 85-95 percent — even before a second vaccine was developed by Dr. Albert Sabin in the 1960s. "I remember how much better things got after the vaccines came out. They changed everything," John says.

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The battle between millennials and older generations isn't exactly a generational war—it's more a case of mistaken generational identity. A decade ago, whining about millennials being young adults unprepared to make their way in the world at least made sense mathematically. But when people bag on millennials now they end up looking rather foolish.

A marketing researcher with a doctorate in social psychology wrote an op-ed for the Chicago Tribune titled "Post-pandemic, some millennials finally decide to start #adulting." And when the Tribune shared it to Twitter, their since-deleted tweet read, "Writer Jennifer Rosner predicts COVID-10 lockdowns will force easy-breezy millennials to grow up."

Hoo boy.

Interestingly, the writer of the op-ed is a millennial herself, but she repeats generalizations about her entire generation that seem like they mainly apply to her own social circle. Read it yourself to decide, but regardless, the tweet of the op-ed itself set off a firestorm of responses from millennials who are tired of being painted as irresponsible young people who don't know how to "adult" instead of what they actually are.

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2020 was difficult (to say the least). The year was full of life changes, losses, and lessons as we learned to navigate the "new normal." You may have questions about what the changes and challenges of 2020 mean for your taxes. That's where TurboTax Live comes in, making it easy to connect with real tax experts to help with your taxes – or even do them for you, start to finish.

Not only has TurboTax Live helped millions of people get their taxes done right, but this year they've also celebrated people who uplifted their communities during a difficult time by surprising them with "little lifts" to help out even more.

Here are a few of their stories:


Julz, hairdresser and salon owner

"As a hairdresser and salon owner, 2020 was extremely challenging," says Julz. "Being a hairdresser has historically been a recession-proof industry, but we've never faced global shut down due to health risk, or pandemic, not in my lifetime. And for the first time, hairdressers didn't have job security."

Julz had to shut down her salon and go on unemployment benefits for the first time. She also had to figure out how she was going to support herself, her staff and her business during this difficult time. But many other beauty industry professionals didn't have access to the resources they needed, so Julz decided to help.

"My business partner and I began teaching basic financial literacy to other beauty industry professionals," she says. "Transitioning our business from behind the chair to an online academy was a challenge we tackled head-on so that we could move hairdressers into this new space of education, and create a more accessible curriculum to better serve our industry.

Julz connected with a TurboTax Live expert who helped her understand how unemployment affected her taxes and gave her guidance on filing quarterly estimated taxes for her small business. "I was terrified to sit at a computer and tackle this mess of receipts," Julz says, so "it was great to have some virtual handholding to walk me through each question."

In addition to giving Julz the personalized tax advice she needed, TurboTax Live surprised her with a "little lift" that empowered her to help even more beauty professionals. "When my tax expert Diana surprised me with a little lift, I was moved to tears," says Julz. "With that little lift, I was able to establish a scholarship fund to help get other hairdressers the education they deserve."


Alana, new mom

Alana welcomed her first child in 2020. "I think my biggest challenge was figuring out how to be a mom, with no guidance," she says. "My original plan was to have my mom by my side, teaching me the ropes, but because of COVID, she wasn't able to come out here."

She was also without a job for most of 2020 and struggled to find something new.

So, Alana took it as a sign: she decided to launch her own business so she could support her new baby, and that's exactly what she did. She started a feel-good company that specializes in creating affirmation card decks — and she's currently in the process of starting a second, video-editing business.

TurboTax Live answered Alana's questions about her taxes and gave her some much-needed advice as she prepared to launch her businesses. Thanks to their "little lift," they provided her with a little emotional support too.

"I got my mom a plane ticket to finally [have her] meet [my daughter] for her first birthday," Alana says. "I was also able to get a new computer," which helped her invest in her new business and work on her video editing skills. "It's helped my family and me so much," she says.


Michael, science teacher

When schools shut down across the country last year, Michael had to learn how to adapt to a virtual classroom.

"As a teacher, I had to completely revamp everything," he says, so that he could keep his students engaged while teaching online. "At the beginning, it was a nightmare because I had no idea. I had to go from A-Z within a couple of weeks."

Michael's TurboTax Live expert answered his questions about how working from home affected his taxes and helped him uncover surprising tax deductions. To top it all off, his expert surprised him with brand new science equipment and supplies, which allowed him to create an entire line of classes on YouTube, TikTok, Instagram, and Facebook. "Now I can truly potentially reach millions of children with my lessons," he says. "I would never have taken that leap if not for the little lift from TurboTax Live."



Ricky, motivational youth speaker

As a motivational speaker, Ricky was used to doing his job in person, but, he says, "when COVID-19 hit, it altered my ability to travel and visit schools in person [because] schools moved to fully virtual or hybrid models."

He knew he had to pivot — so he began offering small virtual group workshops for student leadership groups at middle and high schools.

"This allowed me to work with student leaders to plan how they would continue making a positive impact on their school community," he says. He wasn't sure how being remote would affect his taxes, but TurboTax Live Self-Employed gave him the advice and answers that he needed to keep more money in his pocket at tax time — and the little lift he received from them has helped him serve even more students.

"[It] has been a major blessing," he says "There will be multiple schools and student groups from across the country that I can hold leadership workshops with to empower them with the tools to be inspirational leaders in their school, community, and world."

Plus, he says, it was great knowing he had an expert to help him figure out how being remote affected his taxes. "I felt confident and assured in the process of filing my taxes knowing I had an expert working with me, says Ricky. "There were things my expert knew that I would not have considered when filing on my own."

Filing your taxes doesn't have to be intimidating, especially after a year like 2020. TurboTax Live experts can give you the "little lift" you need to get your taxes done. File with the help of an expert or let an expert file for you! Go to TurboTax Live to get started.