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.

 Angie Aker
09.23.15

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.

economics corporate power broken system health economy other health care human rights health wellbeing health general money work
More

Oprah's social experiment on audience members puts racism in a new light

On an old episode of "The Oprah Winfrey Show" in July 1992, Oprah put her audience through a social experiment that puts racism in a new light. Despite being nearly two decades old, it's as relevant today as ever.

She split the audience members into two groups based on their eye color. Those with brown eyes were given preferential treatment by getting to cut the line and given refreshments while they waited to be seated. Those with blue eyes were made to put on a green collar and wait in a crowd for two hours.

Staff were instructed to be extra polite to brown-eyed people and to discriminate against blue-eyed people. Her guest for that day's show was diversity expert Jane Elliott, who helped set up the experiment and played along, explaining that brown-eyed people were smarter than blue-eyed people.

Watch the video to see how this experiment plays out.

Oprah's Social Experiment on Her Audience www.youtube.com

oprah diversity racism social experiment
Culture

Cadbury removed the words from its wrappers to bring attention to a seldom-discussed issue

The candy giant said it "donated" the words.

via Cadbury

Cadbury has removed the words from its Dairy Milk chocolate bars in the U.K. to draw attention to a serious issue, senior loneliness.

On September 4, Cadbury released the limited-edition candy bars in supermarkets and for every one sold, the candy giant will donate 30p (37 cents) to Age UK, an organization dedicated to improving the quality of life for the elderly.

Cadbury was prompted to help the organization after it was revealed that 225,000 elderly people in the UK often go an entire week without speaking to another person.

Keep Reading Show less
elderly lonliness lonely seniors cadbury dairy milk age uk AARP cadbury removes words from wrappers
Well Being
Walgreens
Walgreens

Teachers seek outside support to tackle today’s challenges in the classroom

Young people today are facing what seems to be greater exposure to complex issues like mental health, bullying, and youth violence. As a result, teachers are required to be well-versed in far more than school curriculum to ensure students are prepared to face the world inside and outside of the classroom. Acting as more than teachers, but also mentors, counselors, and cheerleaders, they must be equipped with practical and relevant resources to help their students navigate some of the more complicated social issues – though access to such tools isn't always guaranteed.

Take Dr. Jackie Sanderlin, for example, who's worked in the education system for over 25 years, and as a teacher for seven. Entering the profession, she didn't anticipate how much influence a student's home life could affect her classroom, including "students who lived in foster homes" and "lacked parental support."

Dr. Jackie Sanderlin, who's worked in the education system for over 25 years.

Valerie Anglemyer, a middle school teacher with more than 13 years of experience, says it can be difficult to create engaging course work that's applicable to the challenges students face. "I think that sometimes, teachers don't know where to begin. Teachers are always looking for ways to make learning in their classrooms more relevant."

So what resources do teachers turn to in an increasingly fractured world? "Joining a professional learning network that supports and challenges thinking is one of the most impactful things that a teacher can do to support their own learning," Anglemyer says.

Valerie Anglemyer, a middle school teacher with more than 13 years of experience.

A new program for teachers that offers this network along with other resources is the WE Teachers Program, an initiative developed by Walgreens in partnership with ME to WE and Mental Health America. WE Teachers provides tools and resources, at no cost to teachers, looking for guidance around the social issues related to poverty, youth violence, mental health, bullying, and diversity and inclusion. Through online modules and trainings as well as a digital community, these resources help them address the critical issues their students face.

Jessica Mauritzen, a high school Spanish teacher, credits a network of support for providing her with new opportunities to enrich the learning experience for her students. "This past year was a year of awakening for me and through support… I realized that I was able to teach in a way that built up our community, our school, and our students, and supported them to become young leaders," she says.

With the new WE Teachers program, teachers can learn to identify the tough issues affecting their students, secure the tools needed to address them in a supportive manner, and help students become more socially-conscious, compassionate, and engaged citizens.

It's a potentially life-saving experience for students, and in turn, "a great gift for teachers," says Dr. Sanderlin.

"I wish I had the WE Teachers program when I was a teacher because it provides the online training and resources teachers need to begin to grapple with these critical social issues that plague our students every day," she adds.

In addition to the WE Teachers curriculum, the program features a WE Teachers Award to honor educators who go above and beyond in their classrooms. At least 500 teachers will be recognized and each will receive a $500 Walgreens gift card, which is the average amount teachers spend out-of-pocket on supplies annually. Teachers can be nominated or apply themselves. To learn more about the awards and how to nominate an amazing teacher, or sign up for access to the teacher resources available through WE Teachers, visit walgreens.com/metowe.

WE Teachers
True
Walgreens

Fed up news anchor has the best response to a man who told her to dress ‘like a normal woman’

Women shouldn't have to dress for the male gaze.

via KGW-TV / YouTube

One of the major differences between women and men is that women are often judged based on their looks rather than their character or abilities.

"Men as well as women tend to establish the worth of individual women primarily by the way their body looks, research shows. We do not do this when we evaluate men," Naomi Ellemers Ph.D. wrote in Psychology Today.

Dr. Ellers believes that this tendency to judge a woman solely on her looks causes them to be seen as an object rather than a person.

Keep Reading Show less
Culture