On December 21, 2016, a bipartisan U.S. Senate Committee gave pharmaceutical companies a smackdown. In a report issued after a year-long investigation into skyrocketing drug prices, lawmakers used words like “predatory” and “immoral” to describe the pricing structure of drugs whose patents had long expired, and were once affordable parts of patient therapy.
The investigation by the U.S. Senate Committee on Aging came in response to media reports of jacked up drug prices following business acquisitions and mergers. The increase in the price of Daraprim last year from $13.50 to $750 per pill was one of the most notorious examples of price-gouging. After the drug’s acquisition by Turing Pharmaceuticals, then-CEO Martin Shkreli made no apologies for the inflation.
In an interview with Bloomberg after the release of the U.S. Senate report, Shkreli responded, “Of course,” when asked if he would employ the same pricing strategy again. He also asserted that other drug companies have taken similar approaches, and many Americans share drug costs with their insurers, and do not pay out of pocket. He did admit that he could have better anticipated the negative reaction, but called Daraprim an “insignificant drug.” Daraprim is a treatment for toxoplasmosis, a parasitic infection most harmful to patients with compromised immune systems, such as those living with AIDS.
The U.S. Senate report focused on four specific companies: Turing, Retrophin — founded by Shkreli in 2011 before he was ousted three years later — Valeant Pharmaceuticals and Rodelis Therapeutics. Despite the apparently narrow focus, the report’s press release stated that additional companies may also use the monopoly pricing model to the detriment of patients.
The EpiPen, a potentially life-saving injection for those with severe allergies, costs between $500 and $600 this year, up from about $100. The company that produces the EpiPen, Mylan, cited rising insurance costs as the impetus behind the increase. When the issue first exploded over the summer of 2016, one lawmaker proposed allowing importing EpiPen from Canada where the cost is still closer to $100.
The idea, and anecdotal evidence, that prescription drugs are cheaper north of the border is not new. It’s been almost ten years since Michael Moore made the documentary Sicko, where he took vulnerable Americans to get treatment outside the country. In Moore’s 2007 rendering, an inhaler that cost $100 in the U.S. cost pennies in Cuba. Uninsured folks in Detroit seemed to have little problem crossing the bridge into Canada to see a doctor at a walk-in clinic, despite a lack of proof of residency or provincial health coverage.
But it turns out getting medications in Canada isn’t as free of barriers as some may believe. In a November 2016 National Post article, physician and journalist Seema Marwaha emphasized that Canada’s drug costs are actually extraordinarily high. Canada has the second-highest drug costs in the world, behind only the U.S. and in the case of generic medications, they may be more expensive than in America. In Canada, regulation prevents the costs of certain drugs from getting too high too quickly, but another set of regulations prevents prices from dropping as well.
In the case of patented medicines, the Patented Medicine Prices Review Board (PMPRB) controls the pricing to help prevent sudden increases. The Board says it regulates the “factory gate price,” meaning the cost to hospitals, pharmacies and wholesalers charged by the patent holder.
There are specific controls implemented by the PMPRB, including one that dictates that prices for new drugs cannot be out of the price range for existing drugs which treat the same disease. Patented drugs also can’t go up in price higher than the Consumer Price Index (inflation). Additionally, Canada’s patented drug costs cannot be the most expensive in the world.
That’s good news if you want to buy an EpiPen. However, if you want to buy the generic antidepressant venlafaxine, it will cost you twice as much in Canada than in the United States. The provinces, each of which determines independently from each other what services and medications are covered under that province’s government-funded health plan, pay a percentage of the cost of the patented drug for the generic version. According to Marwaha, they do not bargain for lower costs, and if there is no patented version of the drug, companies can essentially set the price.
In a report released this summer, the PMPRB concluded that in 2014, Canadian generic prices were 19 percent higher than in foreign markets. While that is still notable, it’s not as bad for Canadians as it was just a few years ago. Generic prices were 40 percent higher in Canada than outside of the country back in 2010. Factors that led to the change included the declining Canadian dollar, offset by foreign price drops, as well as a reduction in domestic prices on generic drugs.
In an interview for the National Post report, Health Policy Analyst Steve Morgan pointed out the fact that Canada is not a single-payer system (despite what U.S. observers may believe) and this inhibits its ability to get the lowest possible drug prices. New Zealand, for example, has a list of covered drugs all purchased by the government. New Zealand drug prices are 40 percent lower than Canada’s for patented medicines and 90 percent lower than generics because of its negotiating power.
Price controls may seem like good news for patients, but past commentators have noted that pharmaceutical companies invest heavily in research and development. Higher profits in the United States mean drug companies can conceive of and discover more remedies for disease. Releasing controls on foreign markets won’t necessarily make U.S. drug prices go down, although some have argued it may make more money available for development.
In 2014, the Tufts Center for the Study of Drug Development estimated that it costs just shy of $2.6 billion to research, test and receive approval for a new drug, a process that can take upwards of a decade. The study looked at 106 drugs developed in the U.S. between 1995 and 2007. $1.4 billion is out-of-pocket costs, while the remainder is “time costs,” or delayed investment returns before the drug gets to market.
However, the U.S. Senate report was quick to point out that most of the companies reviewed had nothing to do with developing the drugs that were now bringing in significant revenue. The report compared the pricing schemes to a “hedge fund” model that was all about profit. Chairman of the Committee, Susan Collins (R-Maine) had harsh words for the companies.
“We must work to stop the bad actors who are driving up the prices of drugs that they did nothing to develop at the expense of patients just because, as one executive essentially said, ‘because I can.’”