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Your tax dollars are making big Pharma rich–twice

Written by Fran Quigley

Have you heard the old saying that, if you look around a poker table and can’t figure out who is the sucker, then the sucker is you?

When it comes to the current medicines system, it is time for us taxpayers to take a good look: we are the suckers in this game. Taxpayers pay for the research to discover medicines we need, which is great. What is not great is that we then hand over monopoly rights to those medicines to corporations, which turn around and charge us taxpayers and our governments sky-high prices for the very same medicines we paid to discover.

There are three important points to be made about this process: One, taxpayers pay for the most important stage of medicines research; two, for the most valuable medicines, taxpayers play a particularly crucial role; and three, there is a silver lining in this otherwise dark cloud.

 1.Taxpayers are the most important supporters of medicines research.

Low-end estimates are that about 40% of medicine research and development costs are shouldered by governments and private philanthropy, not private corporations.  That number is way higher than pharmaceutical industry rhetoric would have us believe, but even that 40% figure understates the key role played by taxpayers. Taxpayer-funded government investments in medicine research are heavily weighted at the front end of the process, the basic research that is essential to identifying how a disease may be vulnerable to attack by medicines. The results of that basic research provide the building blocks for many drug discoveries down the line.

That early-stage research is also time-consuming, expensive, and often quite frustrating. It is ground-level work that is several steps removed from a finished product that is ready for sale. All of these factors make basic research an unappealing investment for a for-profit drug corporation.

So these corporations turn to governments, especially the U.S. National Institutes of Health (NIH), to fund this most risky part of medicines research. The NIH annual budget for medical research is now over $32 billion per year, most of it spent supporting university-based research.  In a future post, we will discuss how Big Pharma successfully pushed for a change in U.S. law that allowed corporations to grab the fruits of taxpayer-funded research, complete with monopoly patent rights.

To be fair, Big Pharma companies often do spend dollars on end-stage development of drugs—or, often, in buying up smaller companies that did the hard work. But that stage of the process is a far less risky endeavor than the earlier research, and often just a comparatively quick stop on the way to selling the product at monopoly prices. As economist Marianna Mazzucato says, the U.S. “invests in the most uncertain stage of the business cycle and lets businesses hop on for the easier ride down the way.”

So, we pay for the medicines twice—first for the research and then for the monopoly-inflated product price charged back to us as patients or to our government programs like Medicare and Medicaid. In fact, it is often more accurate to say that taxpayers are paying for some medicines three times. For some drugs, taxpayers support pharmaceutical industry research by way of tax credits that can reach as high as 50%. And those incessant drug ads we see on TV or pop up online? The huge cost of that marketing—Big Pharma spends far more on ads and marketing than it does on research —is all tax deductible.

Once direct government support and generous tax breaks are added to the equation, some analysts calculate that private industry only pays for a third of U.S. biomedical research.  And  much of that industry contribution is focused on drugs whose chief value is profit, not better health.  Which leads to point #2:

2. For the most valuable medicines, taxpayers play a particularly crucial role.

While profit-seeking pharmaceutical corporations are searching for the next big-selling drug, which is far too often a copycat version of another best-seller , the NIH and other government funders are leading the way in discovering the medicines that are innovative and impactful. A study of drugs receiving the U.S. FDA’s priority review status showed that two-thirds of them traced their roots back to government-funded research.

There are many examples of lifesaving medicines we rely on now that exist because of government research, including prostate cancer drugs,  HIV/AIDS drugs, leukemia drugs,  major mental health medicines, and many vaccines.

Unfortunately, that means there are also far too many outrageous examples of taxpayers and patients getting played for suckers in the medicines system. Here is a quick sampling of taxpayers paying twice, and at sky-high prices, too:

  • The corporation Genzyme charges as much as $350,000 a year, 10 times its manufacturing cost, for a drug to treat the rare Gaucher disease. That price is often charged to government programs like Medicaid, even though the medicine was developed by the National Institutes of Health.

  • The corporation Amgen has billed Medicare for billions in charges for the kidney disease drug Epogen, developed with taxpayer-supported research.

  • The chemotherapy drug pacilataxel was developed with government research and sold back to government programs at monopoly prices by patent-holding BristolMyersSquibb, who has branded the drug Taxol.

  • National Institutes of Health and Department of Defense funding helped develop the prostate cancer drug Xtandi, sold back to the federal government at over $100,000 per patient per year, a price that is two to four times that paid by patients in other countries—despite the fact that U.S. taxpayer dollars developed the drug.

The systemic rip-off of taxpayers and patients may be news to many of us, but physicians, economists, and health activists have been raising the alarm for awhile now. They point out that the medicines system socializes risks and privatizes rewards. As intellectual property attorney Alfred Engelberg wrote in the publication Health Affairs in 2015, “For decades, Congress has simply been transferring wealth from ordinary citizens to the pharmaceutical industry. While claiming to believe in free market capitalism, it has created a web of monopolies which cause the United States to pay the world’s highest prices for drugs.”

3.) The Silver Lining.

As promised, there is some good news about this outrageous system: we taxpayers already pay so much into the current broken medicines model that we can easily shift our investments over to a system that is more effective and just.

A decade ago, economist Dean Baker crunched the numbers and estimated the money that could be saved if U.S. health systems provided medicines without the artificial mark-up imposed by monopoly patents. It turns out that the resulting savings could fund the replacement of all private industry research and development several times over, while still leaving billions of dollars in remaining public benefit.

The rip-off of U.S. taxpayers has not gone unnoticed by U.S. politicians. In August, Democratic presidential candidate Hillary Clinton accurately diagnosed the problem. “Your tax dollars helped support the research that is used to create those drugs in the first place,” Clinton told a crowd in Cleveland. “Your tax dollars support the Food and Drug Administration that tests those drugs to determine whether or not they are safe and effective to be able to go to market.  And then we end up in America paying the highest price for those drugs that we have helped to create.  We have got to take this on.”

The dollars are already in place to build a better medicines system. Perhaps the political will to do so is growing, too. If we the people demand it, there will be a day when taxpayers and patients will only pay once for our medicines!


If you support government drug price negotiation, please sign this petition, here

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1 Comment

  • The vast majority of us already knew this. We knew that most drug research is funded by public dollars at least 2/3rds of what is put out.
    We also knew that pharmaceutical companies were charging us MUCH more than they would charge people overseas.
    The only way to stop that is to go full socialist with a nationalized health insurance option or single-payer period.

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