Politicians decry drug price-gouging problem they helped create

Pharmaceutical chief Martin Shkreli on Thursday refused to testify before U.S. lawmakers who excoriated him over severe hikes for a drug sold by a company that he acquired. Susan Walsh | AP

It’s easy to hate on Martin Shkreli, the smug kid who got rich quick by pricing pharmaceuticals at a ridiculously high price because he bought the rights to them.

Politicians in Washington got a crack at him today. Nobody is going to think ill of politicians trying to beat up a drug thug like Shkreli.

What Shkreli did is despicable, but there’s an aspect to this that is being ignored. Some of Congress’ biggest donors are doing essentially the same thing.

Pharmaceutical companies are raising the prices of their drugs to astronomical levels — perhaps not as high as Shkreli, but for the same reason — and few in Congress seem as outraged by that as they are with Shkreli.

American drug prices are among the highest in the world, and they’re going higher.

Congress has explicitly prohibited Medicare from negotiating drug prices with pharmaceutical companies. About 40 million people get their prescriptions this way.

About 20 brand-name prescription drugs have at least quadrupled since December 2014, while another 60 medications have seen their prices more than double in the same time period, Bloomberg reports.

AARP says the price of generic drugs, which have generally done most of the work to keep drug prices lower, have spiked.

Price spikes aren’t a new phenomenon, says Stephen Schondelmeyer, an expert on drug policy and pricing at the University of Minnesota, who coauthors AARP’s drug pricing reports. “We’ve seen drug companies raise prices before when new regulations come along.

We saw it when Medicare Part D was implemented. We saw it back when Medicaid rebates were implemented. We’re seeing it now partly because of the regulatory changes associated with the Affordable Care Act. Drug companies drive the prices up when they’re worried about the effect of new regulations.”

But some experts say the recent sharp spikes have all the earmarks of price gouging. “You’ll see a particular dosage of a medication shoot up while other dosages remain the same,” says David Belk, a physician in Alameda, Calif., who hosts a website called True Cost of Healthcare. “Sometimes you’ll see prices spike up suddenly, stay high for a month or two, and then drop down again, for no reason.”

But as long as drugmakers aren’t colluding in raising prices, experts say, there’s nothing illegal about jacking up prices.

It’s not the drug companies’ fault, argues Rafi Mohammed, a “price strategy consultant”, in the Harvard Business Review.

“Americans need to take some responsibility for deciding how drug prices are set, and they need to ask the larger question for the future: how should future pharmaceutical advancements be funded?” he says.

I believe in the free market and rarely advocate any type of price regulation. There are compelling reasons, however, to consider doing so for pharmaceuticals. The biggest expense of a new drug is R&D; once developed, the cost of producing pills is relatively trivial.

Most important, everyone in the world can – and should – benefit from pharmaceutical advancements, especially since the variable costs are so low. In other words, the R&D behind new drugs is a common good. Typical solutions to the dilemma of high drug prices include single payer (e.g., U.S. government negotiates “take it or leave it” prices for its territory) and price regulation (e.g., the government simply specifies prices).

These tactics will lower prices but don’t address the issue of paying for new pharmaceutical developments. How can we make sure that the cost of developing new drugs is equitably split among the various beneficiaries around the world? That high-price-paying Americans are not essentially subsidizing R&D for pharma multinationals?

A tethered price regulation is the answer. Regulators could pass a law that says neither American insurers nor government agencies would pay more than a set percentage above (or below) what other developed countries pay for drugs.

In other words, our prices are tethered to theirs. This accomplishes two goals. First, drug prices will be lowered for Americans. Second and just as importantly, pharma companies and other countries will be on notice that sick Americans are no longer going to shoulder a disproportionate share of drug development costs.

Tethered regulation should apply only to new drugs, not existing drugs, which were developed with the understanding that U.S. prices will be as high as the market can bear. We made a bad deal, but we should keep our word.

Not everyone is buying the idea that gouging consumers is the price of researching new drugs.

“We have no rational system in the U.S. for managing prices of drugs,” Dr. Peter B. Bach, director of Director of Memorial Sloan Kettering’s Center for Health Policy and Outcomes, told CNN. Drug companies are charging more and more “because they can.”

In the United States “we don’t have a central agency, governmental or NGO (non-governmental organization) that engages in comparative research that comes up with clear statements of drugs efficacies,” Kesselheim added. The U.S. Food and Drug Administration has no regulatory authority to do large comparative reviews of medications.

North of the border, Health Canada, Canada’s healthy ministry, has a drug review board that helps determine not only does a drug say what it will do, but how effective it is relative to what is already out on the market. This recommendation helps providers determine a price they are willing to pay for the drug.

Bach, of Memorial Sloan Kettering, said that when buyers can say no, for whatever reason, they can control prices better. In fact, Bach’s hospital refused the colon cancer drug Zaltrap in 2012 because it cost double that of a reasonably good alternative, Avastin. The company that manufactures Zaltrap, Sanofi, worried that other cancer hospitals and doctors would follow suit, so it halved the price of the drug.

“The current drug pricing model of year-after-year hikes is unsustainable,” Jon Rother, the executive director of the Campaign for Sustainable Rx Pricing, wrote today . “Americans deserve better than deciding between taking their medicine as prescribed and paying bills. A new market with increased transparency and competition will finally put the health care market to work for patients instead of against them.”

The people who showed up to get a little TV face time grilling Shkreli today are the ones who can eliminate the problem he represents any time they so choose.

It’s a conversation they could have had today even if Shkreli kept his mouth shut.

It’s even an issue that would be a good one in a presidential campaign.