signaling and moral imperatives, both involve big bucks and bloated bureaucracy, and both are solvable issues that are never truly solved because they provide a polarizing political wedge each election cycle.
Both offer ample evidence of broken systems. The U.S. is home to more illegal aliens than any country in the world. Yet, the U.S. has the most advanced military, security and surveillance in the world. The U.S. routinely boasts some of the world’s greatest advancements in medical science, it’s home to the world’s top medical specialists, and it spends exponentially more on healthcare than any other nation. Yet, even with nearly universal public and private insurance options, one in four Americans say they cannot afford to see a doctor, nearly 30 percent say they cannot afford their prescription medication, and the U.S. ranks 26th in life expectancy.
This post isn’t about border security, however. It’s about health care — or more specifically, big pharma. Have you ever bought prescription medication outside of the United States? If so, you’ve probably noticed dramatically lower prices. I certainly have. Price disparity is something I noticed 20 years ago, and the gap has widened dramatically over time.
I personally know of at least three medications that are significantly cheaper in Europe and Central and South America. A 30-day supply of generic thyroid medication in Mexico, for example, is about $4; in Europe, it’s about $7; and in the U.S., it’s $16. The brand-name migraine medication I use is about $35 for four pills in Europe and $180 in the U.S. The antibiotic Zithromax in the U.S. is about $48 at our local pharmacy; in Brazil, it’s about $8.
It wasn’t until I covered Obamacare as a business reporter that I began to peel back the complex layers of bullshit that comprises the U.S. healthcare system. I still don’t fully understand it, but I can tell you this simple fact: Whenever private sectors receive public funds — unless price controls are implemented — there will be massive inflation in looting.
Obamacare legislation covered matters of insurance, but it didn’t appear to offer a clear prescription policy. So it was with morbid curiosity that I tuned in to CSPAN to watch the U.S. Senate Finance Committee hearing on pharma pricing.
In the hot seats providing testimony were big pharma executives from seven domestic and international companies (in order with the image below): AbbVie Chairman and CEO Richard Gonzalez, Astra Zeneca CEO Pascal Soriot, Bristol-Myers Squibb CEO Giovanni Caforio, Johnson & Johnson Pharmaceuticals Vice President and Chair Jennifer Taubert, Merck Chair and CEO Kenneth Frazier, Pfizer CEO Albert Bourla and Sanofi CEO Olivier Brandicourt.
If you like to nerd out from time to time like I do, you can watch the 3-hour hearing here. I recommend skipping past the first hour, which was just a lot of salutations and introductions.
Before hitting on some of the key takeaways from the hearing, here are some key facts to help gauge the scale of the problem.
- The federal government pays more than 40 percent of all Americans’ prescription costs.
- Drug prices in the U.S. are, on average, 40 percent higher than the rest of the world.
- A third of all Americans receive some form of government health insurance, including around 59 million Americans are on Medicare and 75 million on Medicaid.
- In 2016, Medicare and Medicaid alone spent $174 billion on prescriptions drugs, which represented 23 percent of the entire fiscal year budget.
- The U.S. government spends more on health care than on any other single segment of the federal budget, including defense or Social Security.
- The pharmaceutical industry spends around $2.3 billion annually on lobbying Washington, D.C., which is more than any other industry.
- Congress barred Medicare from negotiating drug prices.
Torchy’s Takeaways from the Hearing
Please not that these takeaways are by no means comprehensive.
- Taxpayers subsidize pharma companies both domestically and internationally through tax credits — though it’s mainly domestic companies that benefit from the breaks. They received an additional 1.5 percent tax break via Trump’s recently implemented corporate tax holiday. U.S. companies used the tax break for stock buybacks and investment rather than pass savings along to consumers.
- The average cost per Medicare patient is $25,000 per year (not $11,000). This figure was repeated multiple times by multiple senators.
- U.S. taxpayers and U.S. pharma consumers are financing pharma research for the world.
- The seven CEOs confirmed their companies spend more on marketing and advertising their drugs to U.S. consumers than they do on research and development. Pharma companies also receive a tax break for marketing direct to consumers. Countries outside of the U.S. have made it illegal to directly advertise to consumers.
- Pharma companies license their drug formulas to manufacturers of generics.
- Senators claimed that when they tried to address price gouging by generic drug manufacturers, the lobbyists for big pharma came after them and blocked their attempts. The CEOs seemed surprised by this and promised the senators that they would “look into it.”
- There are countless drugs that are not patent-protected but are manufactured by only one company. In such instances, that manufacturer has a monopoly, and they will often price gouge heavily. There may be as many as 300 manufacturers with monopoly price positioning. Often times, they’re firms that are not tied to or run by the medical community. They could be manufacturing widgets and insulin. The FCC/U.S. Justice Department has done nothing to tackle these monopolies.
- Pharma companies not only patent molecules, they can patent a treatment. (Example not related to the hearing: Bimatoprost is a generic ophthalmic solution that has been used for decades to treat glaucoma. Oddly, it was discovered that the bimatoprost solution caused users’ eyelashes to grow long and thick. So a decade or so ago, pharma company Allergan patented its use as cosmetic treatment to enhance eyelashes and called it Latisse. A decade ago, a 3 ml bottle of bimatoprost for glaucoma would cost about $15. Today, it costs about $45. But that same exact solution in the same exact bottle sold in a fancy box with a Latisse label is $180.)
- Before watching the hearing, I learned that the primary reason drugs are cheaper abroad is that every country except the U.S. has price controls on medication. So when watching the hearing, it was both comical and disgusting to watch both senators and CEOs deliberately and awkwardly dance around the topic of international pricing disparity without uttering the words “price controls.” It was clear that nearly every argument made in the hearing was intended to steer away from trigger phrase.
Questions Not Asked During the Hearing
- How much does your company spend each year on lobbying state and federal government?
- How much does your company spend each year on state and federal political donations?
- Has your company made political donations to any of the senators on the finance committee?