Does Congress understand that pharmaceutical companies can and do set drug prices to maximize profits, without regard to their research and development costs? If they have any doubt, members should read Fran Quigley’s piece in Common Dreams about Frances Leath, a 15-year former Eli Lilly employee in its business development and strategic planning unit. She watched her bosses at Lilly set drug prices at thousands of times their cost.
By the time Leath left Lilly, she found it emotionally and physically challenging to be there. In her words, “I felt like I was participating in things that conflicted with being a Christian.”
Among other drugs, Lilly manufactures Humalog, insulin. Today, Humalog’s price can be as high as $275 a dose even though it costs Lilly about $5 to make. In 1996, Humalog cost $21 a dose. Lilly is pushing up Humalog’s price as high as it can, and people are dying because they can no longer afford it.
Leath reports that it was not always this way at Lilly. The company slogan in 1987 had been: “We make drugs as if people’s lives depend on it.” But, then in 2001, Prozac, which had earned the company more than $2.5 billion a year, was going generic, and Lilly’s stock price fell by almost a third. The pressure was on to find a way to make up for the loss.
Shortly thereafter, the FDA approved Lilly’s new drug, Xigris, for treating severe sepsis. Leath says Lilly at first planned to price it at $500 for a dose, 100 times its cost to manufacture. But, Lilly knew it could set a far higher price; its cost was irrelevant. So, Lilly ended up charging $6,500 a dose, after contemplating a $10,000 a dose price.
Leath voiced concerns with her boss about charging prices without regard to cost that people could not afford. His response: “If Grandma is on the table, no one is going to blink at paying $10,000 to save her life.” And, that became the rationale for Lilly charging exorbitant prices.
What’s worse, Lilly could set a sky high price for Xigris even though it could not show that Xigris actually improved health outcomes. In the US, all the pharmaceutical company has to do to get FDA approval is to show that the drug is better than a placebo. It does not even have to show it is better than other drugs on the market. Germany has a far better model requiring such proof, which you can read about here.
As it turned out, Lilly was making $100 million a year on a drug that was not benefiting patients. Xigris was eventually taken off the market in 2011.
Of course, Gilead, Pfizer and every other for-profit pharmaceutical company also charge as much as they can for their drugs. Research and manufacturing costs are irrelevant to the drugs’ price. The only question is what price the market will bear. And, because insurers and Pharmacy Benefit Managers can also benefit from high drug prices, they are willing to promote costly drugs, incentivizing drugmakers to set high prices.
Like virtually all corporate executives, pharmaceutical company execs focus first and foremost on generating profits and raising stock prices. So long as they can charge astronomical prices for their drugs, they will. Indeed, their success usually depends on it.
If Congress cares about ensuring prescription drugs are affordable, it must step in and regulate drug prices for everyone in the US, just like every other country does. The only reason drug prices are as high as they are is because Congress awards drugmakers monopolies and then does not regulate drug prices.
The simplest and fairest way to set drug prices is through international reference pricing, setting prices in the US at the average of what other wealthy countries pay.
If you want Congress to rein in drug prices, please sign this petition.
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