The Pharmaceutical Industry
Why does medicine cost so much?
By: David McDonald
After a brief analysis of the U.S healthcare system and how it is structured, I came to find that like any other privatized section of the state, the pharmaceutical industry is out for one thing and one thing only: profit.
The difference between Canada’s and the United States’ health care systems lies in that one is a system, while the other is a market. In Canada, the health care ‘system’ aims to provide universal health care for all taxpaying citizens. The result? An imperfect system, but still, with less faults and complaints than its southern neighbour.
I live in Canada, and although I am young, I have a general appreciation for my country’s healthcare system. I wholeheartedly believe that for government-run sanctions such as education, infrastructure, and healthcare to properly benefit the public, they must be funded by the public. Thus, I have no problems paying health care taxes, because I know if I ever break my arm or crack my head open from a snowboarding accident (please don’t read this mom, I don’t want you to have a heart attack) I know that I won’t be paying $15,000 to the hospital in order to get it fixed.
However, this is the reality in America if you don’t have health insurance – a setback shared by over 33 million Americans.
The focus of this article is to understand why medicine costs so much in the U.S. as well as other developed nations without top-notch healthcare. I want to figure out what makes certain healthcare systems inferior to others, and what the U.S. can do to eradicate a generally negative consensus aimed at their own healthcare system.
What makes a great healthcare system?
My girlfriend watches Grey’s Anatomy religiously. If you haven’t heard of it, it’s basically a dramatized soap opera of what goes on inside of a hospital located somewhere in Oregon. The surgeons are excellent in their respective fields of work, and they have the ability to operate under immense pressure to save lives.
One would think that a mainstream American TV show such as Grey’s Anatomy would mainly bolster about the healthcare system in the U.S. right? Not necessarily.
The last episode I watched with her featured a catastrophic loss of one of the main characters, Derek Shepherd. He gets hit by a truck while trying to save some teenagers and gets hospitalized. As the viewer, you are thrusted into his point of view, as he lies helplessly on the hospital bed, wincing in agony as he watches the doctors working on him make crucial errors that end up, costing him his life.
I thought this episode – which was a season finale – highlighted one of the main aspects of what makes a great healthcare system: proper training.
The surgeons that worked on Derek were not properly trained, and it ended up in the loss of a very important surgeon – something that happens everyday in real life, whether you have a great healthcare system or not.
The fact of the matter is this; proper training can ensure your surgeons are in an optimal position to make the most informed decisions, but it does not ensure 100% success.
As it is with healthcare, is with almost every other profession out there. Humans are not perfect, and neither is any healthcare system on Earth.
But there is so much more to a great healthcare system than just proper training. Hospitals and doctor’s offices must have up-to-date quality equipment and tools, there must be sufficient team-work within a healthcare office to ensure optimal success, doctors must be conscious of potential costs to the patient if they are not covered by health insurance, but most importantly, it must be accessible.
Accessibility to healthcare remains one of the largest problems in medicine today
The United States of America is arguably the most powerful, and influential nations on the planet, so why is accessibility to proper healthcare still a problem?
Due to this issue, nearly one-third of Americans are uninsured or underinsured. Twenty-five percent do not visit a doctor when they’re sick, due to the cost. Twenty-three percent can’t fill their prescriptions. People simply can’t afford to visit hospitals or purchase the medications they need because they are being oppressed by the elites.
This is far worse in America than in any of the other countries surveyed. In Canada, only five percent skipped care, and in the UK only three percent. However, if you become acutely ill or injured, lack of access to care can be devastating.
One of the reasons Americans’ health care is so poorly managed is that they are least likely to have primary care providers. There are 0.5 general physicians per 1,000 people in the US, but the average among OECD nations is. Americans are also the most likely to say that their physician doesn’t know important information about their medical history, which has dire implications for quality of care and increases the likelihood of medical errors.
The problems continue to stack up with American healthcare when you consider the inefficiency of its spending habits.
Why is the American healthcare system lagging behind?
The US spends more on healthcare than the next 10 biggest spenders combined: Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain, and Australia, yet the US ranks last in health and mortality when compared with 17 other developed nations.
Sadly, 30 cents of every dollar spent on medical care in America is wasted, which amounts to $750 billion annually. That is the same amount the Department of Defense estimates we spent on the ENTIRE Iraq War! This $750 billion of waste is made up of inefficient delivery of care and excessive administrative costs, unnecessary services, inflated prices, prevention failures, and outright fraud. The largest defrauder of the federal government is the pharmaceutical industry.
Check out the graph above that perfectly dictates this massive inefficiency of healthcare spending within the U.S. It is completely irrational to be spending almost 20% of your GDP on healthcare, when it is still underperforming compared to nations that spend considerably less on theirs.
Not to mention, the rates of accessibility to healthcare in the U.S. are far from anything to brag about, when you consider a mere fifteen percent of the population, or 37 million people, have no health insurance or coverage (the highest in the industrialized world), one-third are children under 18.
Exploring the unnecessarily high costs of medicine in the U.S.
If you’ve been paying attention to the news, or have logged onto Facebook anytime in the last year, the name Martin Shkreli may ring a bell.
Shkreli is a CEO at Turing Pharmaceuticals decided to make a, “serious price adjustment” to the Daraprim drug, the only approved treatment for a rare, life-threatening parasitic infection, by more than 5,000% to $750 a pill.
This price inflation is not common among U.S. pharmaceutical companies, and citizens are outraged at the increasing inaccessibility to necessary drugs that fight off life-threatening illnesses.
From 2008 through 2014, average prices for the most widely used brand-name drugs jumped 128%, according to prescription-benefit manager Express Scripts Holding Co. In 2014, it estimated that total US prescription-drug spending increased 13%. Reasons include increasing research costs, insufficient competition, and drug shortages.
More problematic than the large pharmaceutical companies are raising the prices on medications – something that people should expect – is the fact that there is little to no government intervention in terms of regulating prices on prescription medication.
Unlike many countries where government agencies negotiate prices for every drug with the companies that produce them, the U.S. withholds, probably because there are wealthy corporation owners holding spots at high spots on the legislative branches.
In the US, drugmakers set wholesale prices based mostly on what competing brand-name drugs cost and whether their new drug is better – a practice that has zero concern for the common citizen.
If you have studied basic economics throughout high school, or played the board game Monopoly, you can generally understand the faulty structure of the pharmaceutical market in the U.S.
For many drugs, there isn’t enough competition to hold down prices. Many older generic drugs were priced too low to be profitable, so some drugmakers stopped making them. Once only one company or two companies make a drug, the price usually shoots up.
This is because of a few reasons. First, markets for prescription drug market are what we like to call an oligopoly; A state of limited competition, in which a market is shared by a small number of producers and sellers, a market that is extremely difficult for new enterprises to enter.
Second, large corporations tend to offshore their labour in order to reap the financial benefits of cheaper labour costs. Although this is great for the company owners, it is equally terrible for the average drug purchaser. Raw material shortages and manufacturing deficiencies involving dirty factories, pills containing the wrong amount of an active ingredient and other serious problems, particularly at factories in India are all consequences of offshoring labour to poor, resource dry countries.
We’ve seen the same thing with corporate giants Apple and Microsoft, who are notorious for infringing labour laws in foreign countries, and producing faulty products that are “made to break.”
To recap why prescription drugs cost way too much in the U.S:
A lack of government price regulation on existing and new drugs means that companies can charge whatever the market will allow (usually the highest possible amount)
Small markets means more monopolies. When there is little to no competition between the companies that are producing your drugs, the prices of your medicine will skyrocket, and there is nobody to stop it.
Markets are extremely difficult to enter due to laws surrounding medicine production, time constraints, and the immense amount of money it requires to not only start up a pharmaceutical company, but to produce a new drug.
Development and production costs are too high to say the least. Even with outsourced labour, companies are having a hard time keeping prices low.
My take on all of this
Again, I live in Canada, so I am not directly affected by price manipulation of drugs in the U.S, but that doesn’t mean I am not disappointed in how things are being handled south of the border.
I would say I have more of a liberal mindset, I believe that the government – particularly one that is not corrupt – has all of the potential tools to fix many issues within a country.
However, the issue of medication prices in the U.S. is more of an economic matter, and if you lean more towards the conservative platform, you believe that the economy will iron out any wrinkles with the high prices of prescription drugs.
While the economy tends to take care of itself, the issue of monopolized markets and unfair prices is totally within the realm of the government to fix.
For starters, the government cannot force companies to lower their prices on drugs (as current laws will enable) but they can work to make markets easier to access. For example, the government can make it easier for new companies to gain loans from banks, or the FED. Loans that would be upwards of several hundred million dollars.
Now these new companies wouldn’t have the capital to produce a new drug, as that takes years, and billions of dollars, but it would have the potential to manufacture pre-existing drugs like Daraprim, at a much lower cost than Mr. Shkreli has valued it at.
The pharmaceutical industry in the U.S. is huge, estimated to be around $500 billion. Lobbyists and corporate big-shots fully understand how profitable this market is – and they must surely understand the consequences of raising the prices on necessary medications.
For anything to change, the people at the top of this industry must make a hard decision: profit, or the well-being of American citizens. If you’ve seen the wolf of wall street, then you know how greedy these people can be.
Personally, I don’t think anything is going to change under the leadership of Trump, or Clinton in terms of price inflation of medication. While Trump is self-funded, Clinton is funded by corporations, which means she will grant them a spot in congress. When these things happen, there tends to be monopolies on important commodities such as medicine, which results in prices shooting up 5000%.
Thus, the decisions that have to be made are more so in the hands of the companies that control this monopolized industry, not the government. But if domestic health regulations continue to fall in America like they have been, government intervention may not be too far away.