Robert Pearl, M.D. Contributor
Pharma & Healthcare 4/24/2014 @ 1:00PM
Article link: http://www.forbes.com/sites/robertpearl/2014/04/24/americas-broken-health-care-system-the-role-of-drug-device-manufacturers/
Health care costs are dramatically higher in the U.S. than in the rest of the world. Yet our health care outcomes – from life expectancy to infant mortality – are average at best. There is little dispute over these facts.
The real debate comes when we ask why. While there isn’t one single answer, the rapidly rising cost of drugs and medical devices is a significant factor.
And the magnitude of this problem is likely to spike in the future if not properly addressed.
Pharmaceutical and medical device manufacturers have been criticized for their role in health care for over a decade. Little has changed. Americans pay significantly more for prescription drugs and medical devices than patients in the rest of the world.
The justifications for these extraordinarily high prices vary, but the industry is well aware that most patients have no choice but to pay whatever they charge.
Pricing Not Always Justified, Even For Better Products
Pharmaceutical pricing has long been a point of contention among manufacturers, patients and payers of health care (including insurers, employers and unions).
The U.S. drug patent system allows a drug discoverer to exclusively sell the new drug for an extended time period. Theoretically, this protection is designed to encourage new medical discoveries and enable a drug or device company to recoup its R&D investment.
Because the theory makes sense, drug manufacturers use it to defend their prices. Certainly, those higher prices could be justified for developing clinically superior products but, all too often, the added cost far exceeds the incremental benefit.
How does drug pricing work? It’s hard to say. Pharmaceutical pricing is opaque. Drug manufacturers aren’t asked to quantify their costs or compare them to projected sales and profits. Business school students learn that the price of a product isn’t determined by what’s reasonable but what the market will bear. A wide array of drug pricing examples would indicate that pharmaceutical and medical device companies hire a lot of business school graduates.
How One Drug Might Earn Its Maker A 2,500% ROI
Take sofosbuvir, a new drug used to treat Hepatitis C. It’s marketed as Sovaldi by Gilead Sciences.
As a more effective treatment of Hepatitis C than those available today, this drug will be a positive addition to the physician’s armamentarium. Its effectiveness at ridding the body of this virus justifies a higher price than the treatments available today.
But at $1000 a pill, its pricing is exorbitant, monopolistic, and disrespectful to the purchasers and patients who will bear the brunt of the massive cost.
It is estimated that total treatment costs will range from $84,000 to $200,000 per patient, depending on treatment length. That’s 10 to 20 times the cost of today’s approach. Is this a reasonable return for the company?
Drugs this expensive are typically produced for those with rare conditions. These “orphan drugs” should cost more per patient because of the limited treatment population. But Hepatitis C is a very common disease. It affects nearly 4 million Americans, according to the American Liver Foundation. So, this can’t be the reason.