During a time of high political drama, it was easy last week to overlook a Senate hearing in Washington, D.C. While President Trump’s former attorney was testifying before Congress and the president was meeting with North Korea’s Kim Jong Un, leaders of seven pharmaceutical companies were being grilled by the Senate Finance Committee.
The need for such a grilling is clear. In November, Forbes reported that brand-name prescription drug prices doubled between 2008 and 2016. And in 2017 alone, according to AARP, retail prices for common brand-name drugs used by older adults increased 8.4 percent. Prescription drug prices have affected the finances of American families, and the need to hold executives accountable is evident.
While drug companies and free-market advocates argue that price increases represent capitalism at work, that is not always the case. The patent on a new drug can last up to seven years, giving a company a lengthy monopoly on new medication that might save lives. Once a patent expires and generic versions of a drug become available, prices still can be at the whim of corporations. A federal investigation is examining the process by which pharmaceutical companies buy manufacturers of generic drugs in order to control prices.
Monopolies and cartels do not represent a free market.
As Oregon Sen. Ron Wyden, the ranking Democrat on the committee, said: “Prescription drugs did not become outrageously expensive by accident. Drug prices are astronomically high because that’s where pharmaceutical companies and their investors want them.”
The reason, of course, is profits for executives and shareholders. A study by the General Accounting Office found that two-thirds of pharmaceutical companies saw an increase in profit margins from 2006-15. Not just in profits, but in the profit percentages. When patients in the world’s richest nation have to ration medication because they cannot afford to take it as prescribed, that calls for Congressional oversight.
At one point, Wyden questioned Richard Gonzalez, CEO of AbbVie, about why his company’s drugs cost 40 percent less in Germany and France than in the United States. AbbVie makes Humira, which generates about $18 billion in annual revenue. “You’ve got a double standard,” Wyden said. “You’re willing to sit by and hose the American consumer and give breaks to people overseas.”
Pharmaceutical executives frequently argue that high profit margins are necessary to provide funding for research and development of new drugs. While that explanation is plausible, David Lazarus of the Los Angeles Times writes: “The reality is that much of their basic research is done on the taxpayers’ dime at universities and research institutes, and many of their new drugs in fact are developed by other firms and acquired through mergers.”
Among other necessary solutions, committee member Sen. Maria Cantwell, D-Wash., called for a payment model that empowers states to negotiate drug prices. “I call it a ‘Costco model’ — if you buy in bulk, you get a discount. We’re clearly doing it with the VA. The question debated here is whether we should spread that out to cover more federal programs, which is what is being done in Canada.”
That would be a start, and the issue warrants continued attention from Congress. While salacious testimony from a felonious lawyer or international negotiations might draw the big headlines, what happened last week in a Senate hearing has a bigger impact on the lives of Americans.
