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Big Pharma: Where is the corporate social responsibility in High Drug Prices?

November 10, 2015

Are Big Pharma Drug Prices Out of Control?

 

Imagine you just went to your local pharmacy and were told that the cost of a life-saving drug was $22,500 for 30 tablets to treat AIDS or another infectious disease. Well, if you needed the drug Daraprim that is what you would have to pay. Turing Pharmaceuticals purchased the right to Darprim this past August and CEO Martin Shkreli decided a price increase of 5500% was needed. You heard me right – from $13.50 per dose to $750.00 per pill. But, hope is on the way because San Diego-based Imprimis Pharmaceuticals announced in October that it will be providing an alternative to Darprim that costs a fraction of the pill’s pre-Shkreli price -- $99 for a 100-pill supply or about $1 per pill. In the meantime, how many patients that take Daraprim might get sicker or die because they can’t afford the potential life-saving medication?

 

Unjustified increases in drug prices include the drug naloxone that reverses overdoses of opioids. In September, Amphaster, the manufacturer of the drug, more than doubled its price. This one is hard to understand because the drug has been on the market since 2010. Why double the price now? Is the manufacturer seeking to cash in on the drug before its 20-year patent protection runs out and generic drugs come out?

 

A troubling trend comes from a report by Elsevier, a drug product and pricing information provider, that out of a research sample of 4,421 drug groups, 222 increased in price by 100% between November 2013 and November 2014. One such product is tetracycline, which is commonly prescribed for bacterial infections. During the same period it’s per tablet price increased from $0.0345 to $2.3632, a 67-fold increase in one year. Is the possibility of price controls to blame because drug companies seek to profit before drug prices fall under price controls?

 

We can blame, at least in part, drug price increases on overpaid CEOs of big-Pharma who look to satisfy their own self-interest first and that of their companies, and relegate corporate social responsibility and public health issues to the back of the bus.

 

To be fair, there is some rationale for the positions of big Pharma CEOs that high drug prices are needed because the cost of research and development of new, more advanced medications is ever-increasing. With an aging population, the need to fight off diseases that can be life-threatening is acute. Do we really want to cut off the supply of essential medications that might cure cancer?

 

So, what can be done about the extraordinarily high prices of medications? Bernie Sanders wants to make it legal for all Americans to buy drugs from Canada where they are significantly cheaper. This sounds like a good idea to me as it relies on free market competition to reign in out of control drug prices. Hillary Clinton proposes that there should be a $250-a-month cap on out-of-pocket drug costs for patients with chronic diseases such as cancer. This idea sounds good but it introduces price controls in a roundabout way, which goes against our free market system and: Do we really want the government to become involved in another activity given it consistently shows it can’t manage existing ones? Will price controls open the door to more fraud – in Medicare or elsewhere?

 

Price controls do exist in Europe and Australia because those countries believe – unlike phones or cars – the unique aspect of drug prices is if consumers can’t afford the product, they could have worse odds of living or face certain death. [I don’t think anyone has died from not being able to buy an iPhone -- at least not yet].

 

The European argument identifies the humane element and seems to me to be an ethical position to take. But is it fair to drug companies to control prices of a product they developed and don’t they have a right to set whatever price the market will bear?  

 

Economic guru Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, believes creative solutions are needed and suggests a new way to reward originality in drug research and development by offering a generous cash prize for inventing new medicines, and growing the National Institutes of Health to subsidize the expensive stages of early research for pharmaceutical companies. I’m skeptical of Bernstein’s plan because it, too, provides a greater role for government in prescription drug policy.

 

Recently a group of 118 oncologists came out in an editorial in the Mayo Clinic medical journal to support a grassroots patient effort to push for fairer prices from drug companies. According to the editorial, many cancer patients are bankrupted by the high cost of care even for insured patients for treatment that costs $120,000 a year. The proposal is to get it down to $30,000 in out-of-pocket expenses – more than half the average U.S. household income. According to the editorial, the drugs are so high that as many as 20% of oncology patients don’t take their medication as prescribed. I believe it may be better to mandate catastrophic insurance coverage. Under Obamacare, if you are under 30 or obtained a “hardship exemption” you qualify for a high deductible, low premium, catastrophic plan. What about those over 30 who are more in need?

 

Greed is good. Greed is right. Greed works. These are the words spoken by Gordon Gekko in Wall Street. We could say this is the mantra of greedy CEOs of pharmaceutical companies. In a 2014 survey by Fierce Pharma, a news outlet for the industry, the average pay of the 10 top CEOs of big Pharma was about $30 million. None of the companies were in the Fortune top 100. Celgene was number 369, the highest in the industry. The CEO of Celgene earned $36.61 million. This seems out of line given the relatively small size of most pharmaceutical manufacturing companies.

 

There seems to be no easy answer to the growing problem of high drug prices. We can’t expect CEOs to control their own compensation. It rarely occurs that a CEO gains a conscience and looks to the public good rather than his or her own desires. Some intervention is required in the best interests of consumers. As with most things the devil is in the details.

 

Blog posted by Dr. Steven Mintz, aka Ethics Sage, on November 10, 2015. Professor Mintz is on the faculty of the Orfalea College of Business at Cal Poly San Luis Obispo. He also blogs at: www.workplaceethicsadvice.com.

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