Drug prices in the United States are in the extreme. Many drugs
cost more than $120,000 a year. A few are even closing in on $1 million. The
Department of Health and Human Services (HHS) estimates that Americans spent more than $460 billion on drugs—16.7
percent of total health-care spending—in 2016, the last year for which there was
definitive data. On average, citizens of other rich countries spend 56 percent of what Americans spend on the exact same drug.
HHS estimates that over the next decade, drug prices will rise 6.3
percent each year, while other health-care costs will rise 5.5 percent. Basic
economic principles suggest that drug prices should be going down, not up. For
most drugs, manufacturing volumes are increasing, and little new research is
being conducted on those already on the market.
Peter Bach, a researcher at Memorial Sloan Kettering, and his
colleagues compared prices of the top 20
best-selling drugs in the United States to the prices in Europe and Canada.
They found that the cumulative revenue from the price difference on just these
20 drugs more than covers all the drug research and development costs conducted
by the 15 drug companies that make those drugs. To be more precise, after
accounting for the costs of all research—about $80 billion a year—drug
companies had $40 billion more from the top 20 drugs alone, all of which went
straight to profits, not research. More excess profit comes from the next 100 or
200 brand-name drugs.
But the one company that invests the most in research and
development in the world is not a drug company. It’s Amazon. The online
retailer spends about $20 billion a year on R&D, despite being renowned for
both low prices and low profits. Among the 25 worldwide companies that spend
the most on research and development—which is more than $5 billion a year—seven
are pharmaceutical manufacturers, but eight are automobile or automobile-parts
companies with profit margins under 10 percent. Amazon’s operating margin is
under 5 percent. Meanwhile, the top 25 pharmaceutical companies reported a
“healthy average operating margin of 22 percent” at the end of 2017, according
to an analysis by GlobalData.
If you watch television, you know part of the answer to where this
extra money is going: sales and advertising. Of the 10 largest pharmaceutical
companies, only one spends more on research than on marketing its products.
Pharmaceutical companies often claim that the research costs of
unsuccessful drugs also have to be taken into account. After all, 90 percent of
all drugs that enter human testing fail. But most of these failures occur early
and at relatively low costs. About 40 percent of drugs fail in preliminary
Phase I studies, which assess a drug’s safety in humans and typically cost just
$25 million a drug. Of the drugs that clear this first phase of testing, about
70 percent fail during Phase II studies, which assesses whether a drug does
what it is supposed to do. The research costs of these studies are still
relatively low compared with overall R&D costs—on average, under $60
million a study (Ezekiel,
J. Emanuel, 2019).
It’s
the same in Malaysia. There is no price control mechanism for pharmaceuticals.
Drug prices are not regulated and it is left to market forces to determine the
prices. According to the Star (19 Jun 2019), medicine prices and profit margins
for both innovator and generic drugs have been observed to be higher in
Malaysia than in other countries, sometimes by as much as 400%!
In
May 2019, Health Minister Datuk Seri Dr Dzulkefly Ahmad said the ministry will
use External Reference Pricing (ERP) to benchmark drug prices in Malaysia,
choosing the three lowest prices and averaging them to determine the ceiling
price. The problem is prices
in different markets are not comparable. This is because different regions have
differences in the burden of disease, indications, willingness and ability
(income) to pay. Also, controlling medicine price may not make a significant
impact to reduce healthcare costs. This is because based on statistics of
out-of-pocket healthcare spending by private patients, only 14% of the spending
is from medicine. Therefore, private healthcare centres may recover the loss of
revenue from medicines by shifting their source of revenue to other healthcare
services, such as consumables, medical devices and hospital bed charges.
What
can we do?
Drug
prices should be more transparent. A declaration of wholesale prices in a free
market will allow the government to establish a baseline price, which would
encourage even more competition among drug manufacturers. Patients usually pay
for their medicines at the centres they are seeking healthcare. With higher
price visibility, patients can compare and choose where to get their medicines.
Reference:
1.
Ezekiel, J. Emanuel, Big Pharma’s Go-To Defense of Soaring Drug Prices Doesn’t
Add Up, www.theatlantic.com
2.
Medicines price control will have negative repercussions, 4 Oct 2019,
MalaysiaKini
3.
Should drug prices be regulated or decided by competition? 19 Jun 2019, TheStar
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