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Big Pharma Cashes in on Americans Paying (Higher) Prices for Prescription Drugs

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Hands holding prescription drugs, red

Life changes for anyone dealing with a chronic illness or life-threatening disease, starting with cancer. Patients and family members automatically cope with extraordinary amounts of stress and anxiety.

Many people find that coming to terms with a serious medical battle is only part of the story. The other part is money. It costs a lot of money to be sick in America, and it turns out that Big Pharma employs business tactics to ensure that the cost is higher than it needs to be.

In a revelation earlier this month, 60 Minutes exposed the skyrocketing price of cancer drugs. Doctors at cancer centers across the country spoke out against pharmaceutical drug companies that drive up the cost of lifesaving drugs.

“We’re starting to see the term ‘financial toxicity’ being used in the literature. Individual patients are going into bankruptcy trying to deal with these (drug) prices,” Memorial Sloan Kettering gastrointestinal oncologist Dr. Leonard Saltz told 60 Minutes correspondent Lesley Stahl.

Many cancer drugs cost well over $100,000 for a year’s worth of medicine. In the fight against cancer, most people can expect to be on more than one drug. The bill for medications can escalate to nearly $300,000, a price tag that doesn’t include fees charged by a doctor or a hospital. Health insurance companies – including government polices like Medicare – don’t cover the full cost of these drugs. Some policies don’t cover some of these drugs at all.

In reality, 60 Minutes highlighted a problem that has been going on in the United States for decades.

Americans Pay More for Prescription Drugs than Any Other Country

Cancer drugs aren’t the only costly prescription drugs, and even drugs prescribed for less serious ailments can break the average American’s bank, even with health insurance.

For instance, according to a 2013 report released by the International Federation of Health Plans, Nexium – the “purple pill” commonly prescribed for acid reflux – cost more than $200 for U.S. patients in 2013 and only $60 in Switzerland, the next-most-expensive price in the world for the same drug. In the Netherlands, it cost $23.

A generic version of Nexium became available in 2015, but AstraZeneca filed a restraining order against one company blocking it from selling the drug in the U.S., according to The Wall Street Journal.

Specialty drugs for chronic diseases like multiple sclerosis carry inflated prices. Prescriptions of Copaxone and Gilenya cost about $4,000 and $5,500, respectively, nearly three times more than the most-expensive price in other countries.

Americans pay more for their drugs than residents of any other country in the world. There are several reasons why, but two of the biggest myths promoted by Big Pharma involve the industry’s cost of research and development (R&D).

The Myths about Drugs Costing So Much Money to Make

The first thing pharmaceutical companies say when they answer questions about the retail cost of drugs is that prescription drugs cost a lot of money to get approved by the FDA. That stems from the millions of dollars that get spent developing the drugs.

On average, the cost of prescription drugs in the U.S. is at least double what people in other countries pay for the same exact product and in some cases, it can be as much as 10 times more. Why is the price so staggering for a drug that is the same formula and cheaper anywhere else in the world?

“I do worry that people’s fear and anxiety are being taken advantage of. And yes, it costs money to develop these drugs, but I do think the price is too high,” Saltz told 60 Minutes.

Pharmaceutical companies are fond of saying Americans take the lion’s share of the R&D costs for the rest of the world – calling other countries “foreign free riders.” So, drug companies are forced to charge Americans more to recover what they don’t get from other countries.

In fact, the more disturbing truth is that companies charge what they want in the U.S., and it’s a profiteering paradise for them.

PhRMA, the industry lobbying group, released a 2013 report showing that drug companies spent an estimated $48.5 billion on R&D in 2012. The most current figures they have (from the early 2000’s) show the cost of developing one drug is about $1.2 billion.

“The drug companies have to put a price on a medicine that reflects the cost of developing them,” John Castellani, the CEO of PhRMA told 60 Minutes. Castellani blames insurance companies for making drugs “artificially expensive” for patients.

How true is this?

University of Medicine and Dentistry of New Jersey Health professor and policy expert Donald W. Light challenged the notion that high drug prices are simply the cost of doing business. He said the actual cost is less than $60 million once all the padding is taken off since the estimate is based on only the most expensive drugs with extensive clinical trials. Cost of Cancer Drugs

The Tufts University Center for the Study of Drug Development, which receives industry funding, came up with the formula to calculate cost, the Fiscal Times reported.

Light authored several peer-reviewed papers on the pharmaceutical industry and wrote “The Risks of Prescription Drugs,” published in 2010, that reveals Big Pharma’s “hidden business model.”

“The hidden business model of pharmaceuticals centers on turning out scores of minor variations (on older drugs), some of which become market blockbusters,” Light writes in a 2012 British Medical Journal (BMJ) article. In other words, there may be an initial high cost of developing a drug, but each minor variation costs less to produce and is priced high.

He says what companies report as R&D is actually unverifiable. Not to mention, companies make billions on most of these drugs, and they receive massive tax breaks for R&D, leading to inflated figures. Another huge portion of the costs are subsidized by taxpayers.

Only 1 in 10 of these “new” drugs actually provides substantial benefit over old drugs, and side effects create the need for more drugs. Some of these drugs also have complications so terrible that people end up filing lawsuits to recover damages.

“We can find no evidence to support the widely believed claims from industry that lower prices in other industrialized countries do not allow companies to recover their R&D costs so they have to charge Americans more to make up the difference and pay for these ‘foreign free riders,'” Light wrote on his website.

U.S. Law Protects Drug Companies from Free Market

U.S. law protects these companies from free-market competition, and Medicare is not allowed to negotiate prices. By law, it has to pay exactly what the drug companies charge for any drug. The same goes for other insurance companies who simply do not negotiate.

In contrast, governments in other countries put caps on the price of drugs and negotiate prices based on what the actual therapeutic benefit is. And Big Pharma still turns a healthy profit in other countries, despite costs being 40 percent lower than they are in the United States.

In the case of almost every other product sold on the free market, the older a product gets the less it costs. In the case of cancer drugs in America, the inverse is actually true. Novartis developed Gleevec, one of the most popular cancer drugs, in 2001 and sold it for $28,000 a year. By 2012, its cost rose to $92,000.

Despite not being a novel treatment, Novartis is allowed to hike up the price every year in the United States.

Many Americans Can’t Afford Their Medicine

Health is a business, and Big Pharma isn’t exactly known for its compassion.

Bayer CEO Marijn Dekkers summed up the industry’s seemingly flippant views on drug pricing in a December 2013 news conference about drug prices in India (also much less expensive than in the U.S.). Dekkers told the Financial Times that Bayer designed cancer products for Western patients who could afford them, Bloomberg reported.

Where does that leave those who can’t? In the end, the ones who suffer most the patients who end up without the medicine they need. PBS reported that in 2013, about 1 in 5 Americans did not fill prescriptions or skipped doses because the medications were too expensive.

In contrast, less than 1 in 10 of Germans, Canadians and Australians had the same problem.

“They are making prices unreasonable, unsustainable and, in my opinion, immoral,” Dr. Hagop Kantarjian of MD Anderson Cancer Center told 60 Minutes. “High cancer drug prices are harming patients because either you come up with the money, or you die.”

Big Pharma Enjoying Some Good Years

Big Pharma would have many Americans believe that it is disadvantaged by the costs of developing a new drug. The truth is, drug companies are far from impoverished. A report from EvaluatePharma shows that 2013 was the biggest year since 2009 for drug approvals. These new drugs will add nearly $25 billion to Big Pharma’s coffers by 2018, and prescription drug sales will exceed one trillion dollars by 2020.

The health care industry as a whole has more than enough money, with billions left to continue pursuing its interests in Washington. Since 1998, the industry spent more than $5 billion on lobbying in Washington, according to the Center for Responsive Politics. To put that in context, that’s more than the $1.53 billion spent by the defense industry and more than the $1.3 billion forked out by Big Oil.

Doctors are calling for change, but it’s an uphill battle. In the case of cancer drugs, decisions are often made on how much extra life a drug can give a patient. How can someone put a price on that?

“I don’t know where that line is, but we as a society have been unwilling to discuss this topic, and as a result the only people that are setting the (price) line are the people that are selling the drugs,” Saltz said in 2014.

Politicians Take Action to Lower Drug Prices

In 2015, society started talking about prescription drug prices. A perfect storm formed when Valeant Pharmaceuticals acquired a pair of drugs and increased their prices by 525 percent and 212 percent. Months later, Turing Pharmaceuticals acquired the rights to a drug and raised its price from $13.50 per pill to $750.

National media ran with the story, and presidential candidates vying for spots in primary polls spoke out on the issue. Almost every presidential candidate announced plans for reducing drug costs. By November, Valeant sold the rights to its drugs back to the former owners, and Turing promised to commit to price reductions.

That same month, Democrats in the U.S. House of Representatives announced the formation of a task force to combat the rising costs of prescription drugs, and the Senate Special Committee on Aging began an investigation into the increase in drug pricing by Turing, Valeant Pharmaceuticals and two other companies.

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