Drug Prices Are Skyrocketing - Fiscal Health NC

“It’s time to bring drug pricing under control. Empathy arbitrage can not be a pricing strategy.” -Mark Cuban, Owner of the Dallas Mavericks

Full disclosure: this is long. But if you want to know why your drugs are so expensive these days, and what to do about it, we encourage you to read to the end. Because it’s becoming clear that more than ever, we need to do something about the outrageous healthcare prices affecting us all.

It’s no secret that our healthcare is expensive. As a country, the United States spends more than $3 trillion dollars annually on healthcare, with 10% of that coming from prescription drug costs — $300 billion. That’s roughly the GDP of South Africa. $300 billion could build the Dallas Cowboys’ state-of-the-art stadium 250 times over.

To make things a bit more personal: the average American drug tab is more than a thousand dollars a year. One grand every year, on average, per person. Insurance companies pick up most of the cost for most people, but think about it: what does that high cost do to your premiums? These high costs are one of the reasons that drug companies — Aetna, most recently — are pulling out of Obamacare, causing huge problems for people who get their insurance from the federal marketplace.

And for some people, no amount of insurance in the world can keep prices down. Some Americans with tough-to-treat conditions spend as much as $50,000 a year on drugs. And costs are expected to keep rising: there was a 13.5% increase in 2015 alone.

So what’s up with these absurd costs? And more importantly, what’s the solution?

Big Costs, Big Pharma

Prescription drug costs are complex, shaped by decades of legal and legislative action. Pharmaceutical manufacturers are quick to point out that it costs huge amounts of money to develop a new drug and get it to market — up to $2.6 billion dollars on average. Obviously, they have to recoup these costs, and that drives up drug prices.

However, there are other factors at work. Legislation like the Orphan Drug Act of 1983 allows pharmaceutical companies — the cadre of movers and shakers often referred to as “Big Pharma” — to drive up the prices of medications intended to treat rare diseases. The reason, from their perspective: these drugs treat so few people that manufacturers have a hard time getting back the money it took to make them. But these high costs are a huge burden on consumers, and the number of drugs affected is increasing all the time. In 2014 alone 44% of new drugs introduced to the market had “orphan” status, so most of them are super-expensive.

These drugs are manipulatively marketed. Ads are designed to maximize profits for drug companies. You know all those “Ask your doctor about this awesome drug!” ads? That’s direct-to-consumer advertising, and it’s been on the rise in recent years. Many physicians claim that these ads affect their practice and the health of their patients, creating a high demand for drugs that increases their costs. And this kind of advertising remains relatively unrestricted.

And then, of course, there’s price gouging. You’ve probably heard the term. It refers to the modus operandi of a new breed of Big Pharma companies: holding companies created by hedge funds, companies that never had to pay for research and development of the drugs they buy, but purchase the rights and then jack up prices anyway. That’s what Mark Cuban is talking about in the quote at the beginning of this article. Setting different drug prices in different markets is called arbitrage, and it’s a huge problem for consumers.

And we’re not done yet. Big Pharma has one more trick up its sleeve.

The Rise of Health Advocacy Organizations

Health Advocacy Organizations (HAOs) sound benign, but some say that their true purpose is pretty sinister. HAOs tend to be closely affiliated with large pharmaceutical firms and their various marketing departments. As a study published in the American Journal of Public Health put it, HAOs lobby for increased government support of medical research and healthcare availability, but their goals correspond nearly perfectly with the marketing activities of the pharmaceutical companies involved. In other words, you could say that they work for patient health by way of working for drug companies.

The relationships between HAOs and their pharmaceutical buddies also tend to be...well, kind of shady. Numbers are hard to come by; according to the AJPH study, most HAOs do not acknowledge the grants they receive from Big Pharma. None disclose the actual dollar amount. But due to their lobbying influence and emotional appeal (HAOs are famous for having vulnerable patients testify before Congress) they are key players in shaping legislation. And that legislation drives the cost of prescription drugs for us all.

So What Can We Do?

One costly result of HAO lobbying efforts? Mandates. Mandates are legislation that makes insurance companies pay for something. To get that money back, insurance companies raise premiums for all consumers. Basically, mandates become a hidden tax we all pay that only benefits small parts of the population. If you’ve hung around here for a while, you know that mandates are our reason for being.

If you’ve read this far...thank you, because we want to fight mandates, and we want your help. Join us. It’s one active step you can take to help stop the incredible rise of healthcare costs in North Carolina. We’ll send you updates on any mandates making their way through the legislature, and what to do about them. And we promise to keep fighting for your right to healthcare you can actually afford, for the good of everyone’s mental health and fiscal health.