I currently reside in America, am covered under ACA insurance, and take very expensive medications to control my chronic illnesses on a regular basis. Two of them are Xarelto and Enbrel, big brand name drugs. I will take them for the rest of my life, more or less. Because Americans pay for healthcare the insurance I choose every January basically decides whether I can afford rent, groceries, or utilities for the whole year.
The insurance I chose this last January was, I was told, “the best” for someone with my medical background. I pay a little over $300 a month with an $8,150 out of pocket max. This does not include my husband, who has to pay for his own separate plan, because it was cheaper that way.
My medications are so costly, I hit that out of pocket max by July this year and now my insurance covers everything except co-pays. Medication costs are by far my biggest expense.
Reflecting on this triggered my dive into the world of medication cost. Why the hell does it cost so damn much. Who is calling the shots here?
Let’s start at the root
When it sank in that I had decided to investigate why medications cost so much in America, I knew immediately that I’d a need bigger boat. I also knew I would have to start with “Big Pharma”, the head of the snake. I then realized it would be too much to cover in one post, and so a series about high medication costs was born!
The term “Big Pharma” is a colloquial, or everyday, phrase for what is a large group of pharmaceutical companies that develop, manufacture, and market medications in the U.S. This is different from “PhRMA”, which is the “Pharmaceutical Research and Manufacturers of America”, created in 1958 to advocate for public policies that encourage the discovery of new medications.
For the sake of simplicity, when I refer to “Big Pharma” I am talking about the actual companies that make up the top Pharmaceutical companies in America, not PhRMA.
Let me introduce them to you!
Below you will find a list of the top 7 biggest companies in the U.S shown in order by revenue in billion dollars in 2019:
- Johnson & Johnson ($82.1 billion market value)
- Pfizer ($53.66 billion)
- Merck ($46.8 billion)
- GlaxoSmithKline ($43.1 billion)
- Sanofi SA (42.12 billion)
- AbbVie (33.26 billion)
- Bristo-Meyers Squibb ($26.145B)
The next “smallest” company (by way of annual profit) sits at about 20 billion. And don’t be fooled, there are many more companies that have their hand in the Big Pharma pot.
The ones I listed above are just the big heavy hitters we hear about all the time. Also worth mentioning is that all of these companies, save for Pfizer, have seen increases in profit over the last 3 years. Which is as far back as I had the heart to go. You’ll find out why the further into the rabbit hole we go.
How do they make so much?
Pharmaceutical companies make the bulk of their profits by selling medications to hospitals via distributors and to patients at the pharmacy counter/mail-in order. Of course. They make/sell a ton of medications.
In fact, based on a study done by the CDC, between 2015-2016 over 48% of Americans had taken 1 or more prescription drugs within 30 days. Taking the estimated population of Americans over the age of 18 in 2015 into account, that is about 123,582,600 prescriptions. Within one month alone.
But here is the snag in my pantyhose: Pharma companies, in America, are allowed to come up with their own “list prices”, you could call them the “manufacturer prices” for medications. And as you could have guessed, these “list prices” are not fixed. The rates change every year, and mostly upward. According to the American government, this is allowed to go unchecked because “market competition”.
Seeing that this was clearly getting out of hand, a panel of 7 top executives from the top 7 Pharma companies were recently brought before a Senate Finance Committee (23 members), on February 26th 2019. It was 3.5 hours of top Pharma execs getting grilled to the point of exhaustion. I watched all three and a half hours so you don’t have to. And it was oh so nice to see them sweat.
Here is a list of the juiciest tidbits from the hearing:
- On average, Americans pay the highest drug prices in the world
- Humira is the world’s best selling drug. In 2017 alone, Humira generated 18 billion in revenue
- The price of Humira by AbbVie has increased over 6 years from $19,000 to $38,000 (for a year supply) with no less expensive option.
- High list price= high rebate for Pharmacy Benefit Managers (more on these guys later)= high formulary listing (Tier 1 vs tier 2, etc. drug pricing)
- American taxpayers contribute more than 200 Billion in grants to Pharma companies to use for developing drugs via the NIH. (this is super important)
When asked why drugs cost so much, the Despicable 7 basically hinted that America is covering the cost of research and development for the rest of the world. That if Americans stopped paying so much, the investment would mean less quality drugs for the world. Americans are carrying the brunt of progress for the WORLD.
According to an analysis done by Savings Rx “More than 3,400 drugs have boosted their prices in the first six months of 2019” by 17%. The average price hike was 5 times the rate of inflation.
For an obscene number of Americans that I am afraid to research, this means the difference between controlling your health issues, curing an infection, or paying your rent/buying groceries. The implications of the increases are just criminal.
So how much does R&D cost?
For the most part, these companies all justify their high prices by quoting the massive amount of money they throw into research for new drugs. In their defense, (I will only say this once) it is a huge investment that may not pay off every time. Every year billions are invested but, on average, only 3 out of 10 drugs actually make it to market.
They are banking on the few successful drugs to cover the cost of making them so they can make up that loss. Since the demand is always high, there are always potential new drugs in the “pipeline”.
The kicker is that there is a federal R&D tax credit for these companies to help pay for research, known as the Research and Experimentation (R&E) tax credit. It was first introduced in 1981 as a two-year incentive but it has remained part of the tax code ever since. Go figure.
Well.. in 2014, some data arose with the number of billions they spent on R&D versus Marketing, and the chart looked like this:
|Company||R&D spend ($bn)||Sales and marketing spend($bn)|
|Johnson & Johnson||8.2||17.5|
I’ll admit it would be very hard to argue in their favor after I came across this. However, these numbers have changed. Or at least, they say they have changed since 2014.
At the Senate Committee hearing, all 7 execs said they spent more on R&D than marketing except for AstraZeneca and Sanofi. Johnson and Johnson and Merck now claim they spend a hella lot more on R&D than in the past.
Well for starters. I think what happened is they got caught.
Also, keeping in mind that they themselves reported these numbers, there is no clear cut universal way to categorize these numbers. During the hearing, when asked if they spend more on R&D than on marketing they each said yes but “if you exclude administration costs”. Apparently, if they included “administration costs” to their marketing total, it would be the reverse.
Sounds like they spend most of their money on research, right?
The double jeopardy of it all
The worst part in this mess is that American taxpayers are paying twice for medications. the first time out their paychecks, and the second at the pharmacy counter. Taxpayers are subsidizing drug companies via grants provided by the NIH Research Project Grant program, which is funded by taxpayer money.
A report published in 2018 found NIH funding contributed to published research associated with every single one of the 210 new drugs approved by the Food and Drug Administration between 2010–2016. Within that time span the research for new drugs comprises over 2 million publications and was supported by federal (primarily NIH) funding totaling more than $100 billion. Why do they need all this money?
When the execs gave written reports to Senate on their Marketing vs R&D budgets, some included global sales and promotion. Another included “direct sales and marketing”. A third cited ” selling and administrative expenses.
Basically, all the companies have their own way of categorizing what “marketing costs” really means, and therefore can portray it however they’d like. Should we expect anything else? Speaking of marketing, if you feel like half the commercials you see are for prescription medications, you aren’t exactly wrong.
Before tacky drug ads became a thing, medical marketing was only geared toward physicians. Doctors would get visited by agents, sit through power point presentations and get brochures on the latest new drug. This still happens today, and is still the focus of most pharma companies.
You see, there weren’t always commercials for drugs on TV for the regular public. Commercials for drugs have only started gracing our TV screens since 1986. It wasn’t until a salesman by the name of Joe Davis decided to meet with a medical advertiser in the early 1980’s (who only advertised to physicians) that the cringe-worthy commercial drug ad was born.
According to a study done in 2018, direct to consumer marketing (TV ads/magazine ads, billboards, etc.) for ads increased from $1.3 billion (79,000 ads) to $6 billion (4.6 million ads). This included 663,000 TV commercials.
Back in 2011, the Nielsen Company determined that there are, on average, 80 drug commercial an hour in the US. Even though the FDA frowns down on it, there are no federal laws, only “regulations” or as I would like to call it “guidelines”. Pharma companies consider television ads as “critical public health tools” so why not keep it going.
How did America fall into Pharmas pocket?
Say it with me now: lobbying!
On March,3rd 2020, an investigation was published that studied the lobbying expenditures and campaigning contributions of Pharma between 1999 and 2018. It found that pharmaceutical industries spent a total of $4.7 billion on lobbying the federal government alone.
Another $877 million were paid directly to state candidates and committees that, for the most part, are members/senior members or party leaders of health related committees that should be regulating them. Let’s not also forget the other $414 million spent on presidential and congressional electoral campaigns, national party committees, and outside spending groups.
The most sinister part of this is that Pharma companies focus their monies to counter government effort to lower drug costs. The study concluded “In years in which key state referenda on reforms in drug pricing and regulation were being voted on, there were large spikes in contributions to groups that opposed or supported the reforms.”
Basically if the reform meant more money for pharma, they were all about it. If it meant cutting drug costs, pharma begged, borrowed and paid whoever they had to make it go away. For example, in 2017, $61 million was spent in Ohio, which suspiciously was the same year a ballot intending to lower prescription drug costs was voted down.
Medication cost: Brand name VS. Generic
New vocabulary word of the day: “Evergreening”! And no it doesn’t have to do with the Winter season.
Evergreening is a tactic used by drug companies to hold on to their drug patents by making “slight changes” to the formula or device. This allows the company to continue extending/applying for patents and thereby, exclusive rights (read: monopoly) on the drug or device. The changes could be as small as minor adjustments such as changing the color coating of a pill or putting a different cap on the dispenser pen.
New patents can be created for a drug even if nothing about it actually changed. If the company finds out that their drug can treat a new illness that wasn’t previously approved for, new patent!
For example, Humira was primarily only approved in 2002 for RA and it’s primary patent expired in 2016. However, because of evergreening practices, AbbVie currently has 136 current patents, on Humira alone, until 2034.
With another 111 applications in the pipeline, AbbVie basically has an exclusive monopoly on Humira for at least another 14 years. Monopolies on drugs make it impossible for other companies to create more generic, usually more affordable, drugs. Evergreening means big companies can keep filling their pockets.
Once a patent expires, sales for a drug can fall by 90+% because of generic competition. Of course they don’t want to let go of their cash cows.
This is a huge problem for patients
Another obstacle to getting generics on the market is something called “sample withholding” which is exactly what it sounds like. It is companies not sharing product samples with other companies so they can analyze the product and create similar copies.
I can’t believe I just wrote that sentence. It’s the most infantile thing I’ve heard of companies doing to each other.
Because of this childish shit, the CREATES Act was born. It was drafted in 2016 and was lobbied out in 2018 by Big Pharma (shocking) but then passed in 2019.
It basically states that Pharma companies need to play nice with each other and that smaller companies can sue bigger companies for samples with the intent to create generic versions. The other impact law makers hoped for, was the reduction of cost in generics, due to market competition. If there are a lot of generics on the market, the cost will naturally drop.
Manufacturer Co-Pay assistance programs/ Coupons..problematic?
To help save face and deal with the pesky problem of people complaining over increasing costs, pharma companies have started offering co-pay programs, debit card assistance programs, and coupons. An example of this is Xarelto. With this card, which I had to qualify for, I end up paying $25 monthly for my refills. Which is MUCH better than the list price (as of the time I am writing this) of $470.
Programs such as these are a heaven send to people who can’t afford medications at full price (people who are not insured) and those whose insurance leaves them hanging, like me (the under-insured). You could even call these programs safety nets, however, like all things, these discounts come at a cost.
These programs are not available to all. Some have income eligibility requirements, or insurance requirements and some even have complex, higher reading level applications that make them difficult to apply for in the general public.
The other complication is in the long run, these programs/coupons also do nothing to actually lower the price of the drug, and may even allow the continued increase in cost.
Patients are encouraged to take brand name drugs without the issue of excess “brand name” cost which causes insurance companies to have to foot the bill for higher priced drugs. This in turn will drive up premiums for the insured. And also screw over patients who don’t have insurance, or Medicare patients who find themselves in the donut hole.
Essentially: short-term savings for some, long term consequences for everyone
The whole system is screwed
The way Pharma has rigged the system, patients will end up paying *less* with co-pay/ assistance programs for brand name drug than generic, and insurers are forced to foot the bill. No matter to them if that ends up hurting patients in the long run. They have figured out how the make even the public, participants in their game for more money.
Don’t feel badly
If you are prescribed, or are currently taking a medication that doesn’t have a generic alternative, by all means, use the coupons and programs freely and without second thought. I am benefiting from them myself.
Conversely, if you are taking a brand name with a generic alternative but it is cheaper with a coupon, continue to do so as well.
The onus on fixing this is not on patients. Until I dig further, it’s unclear whose it is, unless I ultimately find out, it’s on all of them.
“If you bring medication into this market with a low list price in this system you get punished financially and you get no uptake because everyone in the supply chain makes money as a result of a higher list price”Dr. Frazier, top executive from Merck, 02/26/2019
My next step is to investigate the next link in the supply chain: Insurance Companies. Until then…
Sending you gentle hugs and warm light,
P.S. If you like this article and would like to support my research, please feel free to comment, subscribe, or if you are feeling SUPER generous, buy me a Coffee!