Diane talks with Damian Paletta, economics editor at the Washington Post.
Surveys in recent years have repeatedly shown that Americans are concerned about the cost of prescription drugs. But concern turned to outrage this month when a pharmaceutical company jacked up the price of a generic drug called Daraprim from $13.50 to $750. The company, Turing Pharmaceuticals, has since said it would lower the price. But the spotlight on drug prices remains strong. Some blame greed by drug makers and a lack of competition. Others blame government regulation. We discuss why drugs cost what they do – and what can be done to lower prices for consumers.
- Craig Garthwaite Health economist at Northwestern University's Kellogg School of Management.
- Julie Appleby Senior correspondent, Kaiser Health News
- Neera Tanden President and CEO, Center for American Progress
MS. MELISSA BLOCKThanks for joining us. I'm Melissa Block with NPR News sitting in for Diane Rehm. She's off today. Most Americans believe prescription drug prices are too high, but there's not much agreement on what to do about it. The solutions tend to shake out along ideological lines. Conservatives say too much regulation is the main culprit. Liberals tend to blame corporate greed and a lack of competition.
MS. MELISSA BLOCKJoining me in the studio to talk about drug pricing in the U.S. are Neera Tanden, president of the Center For American Progress, and Julie Appleby, she's senior correspondent with Kaiser Health News and from the studios of WBEZ in Chicago, we're joined by Craig Garthwaite. He's a health economist at Northwestern University's Kellogg School of Management. Welcome to the three of you. Thanks for being with us.
MR. CRAIG GARTHWAITEThank you.
BLOCKAnd we will be taking your comments, questions, throughout the hour. You can call us on 800-433-8850. Send us your email at email@example.com. You can also join us on Facebook or Twitter. We look forward to hearing from you. Julie Appleby, let's start with you. Why don't you remind us about what exactly Turing Pharmaceuticals did with this drug called Daraprim?
MS. JULIE APPLEBYWell, this all got started when Turing Pharmaceuticals bought the exclusive rights to this 62-year-old generic drug that treats this particularly nasty parasitic infection called toxo...
BLOCKHang on one second, Julie, while we work on some technical issues here. And okay, now, Julie. Go ahead and tell us more about Daraprim and what Turing Pharmaceuticals did.
APPLEBYTuring bought the exclusive rights to this drug. It's a 62-year-old generic drug that treats this particularly nasty parasitic infection called toxoplasmosis. It's a drug used by a small number of people, but it's really important for those who have these weakened immune systems. Maybe you have cancer or HIV aids. And seemingly overnight, the company raised the price of this drug by more than 5,000 percent from $13.50 a pill to $750 a pill.
APPLEBYAnd so that really concerned a lot of patients' groups who try to get the word out. A couple of media outlets wrote about this, but it really took off when the CEO of this company, a man named Martin Shkreli, went on the news media and on Twitter and he was unapologetic. He basically said that this price increase was a good thing. It was good business. And he then managed to get into some Twitter fights.
APPLEBYHe called on journalist a moron when the journalist asked him, you know, why did you raise the price to $750 bucks. So that really caught the attention of a lot of people and it fueled some ongoing political interest in drug pricing and it's even playing out on the political campaign trail. We saw Hillary Clinton accuse the CEO of price-gouging and Donald Trump in sort of Trumpian way called the CEO a spoiled brat.
APPLEBYThe CEO has since said he would back off on the price hike so the drug is more affordable, but he hasn't yet said what that price will be. But nonetheless, he's become kind of a lightning rod for criticism of the drug industry not just on new drugs, the price of new drugs, but the cost of these older generic products.
BLOCKUm-hum. And Craig Garthwaite, let's bring you into the conversation here. The new CEO, Martin Shkreli, of this company has really become public enemy number one for this debate over drug pricing. Is that fair or is the argument that he's making okay, that the drug company should be able to charge what it wants?
GARTHWAITEWell, I think it's probably fair that he's taken quite a bit of criticism. I think what's important to realize is that there are drug increases for things like Daraprim and other older generics where companies are taking advantage of really an imperfection in the market where you have a very small patient population that takes these drugs and it's probably -- it doesn't make a lot of sense for a second firm to enter, even though the drug isn't patented.
GARTHWAITEAnd so the one firm that's there has effectively monopoly power. And we can do thing to solve that and there are particular things to do for these orphan drug populations. What's going to be unfortunate, though, is if we try to think that this is somehow indicative of the entire drug or pharmaceutical industry where we have new drugs that are coming on market that we offer patent protection to and we offer them patent protection so that they can earn profits that make up for their research and development, but also to provide incentives for the next firm to want to develop a drug in response to those profits.
GARTHWAITEAnd so what we don’t want to do is develop policies to deal with sort of a bunch of hedge fund people who have come in and bought up sort of obscure old drugs and apply those policies to the broad pharmaceutical market.
BLOCKAnd that is the case with this drug and this new CEO. He was a hedge fund manager, I believe?
GARTHWAITEYeah. I mean, this is not in any sort of the way the drug industry operates. I don't mean that in a sort of a defensive way of the industry. There's lots of criticism we can give to that industry. But in a broad sense, when we see high drug prices -- so, for example, for the past year, before Turing Pharmaceutical, when we talk about high drug prices, we tended to talk about Sovaldi, which was the cure for hepatitis C, which was priced at $84,000 for a 12-week treatment.
GARTHWAITEThat's a fundamentally different issue, though. That's a drug that really created true value for customers in the sense that it was the first cure for hepatitis C that existed. And we have 3 million people in the United States and even more worldwide who now have an actual effective treatment. And so the high prices charged there is because that drug is under patent and that's a decision, as a society, we have made to allow drug companies to earn profits to provide the incentives for the next drug company to want to make a value-creating product.
BLOCKWe'll talk more about that, that decision as a society that you say we've made, in a moment. Julie, I do want to mention, too, there are also heart medications that we've seen huge price spikes with.
APPLEBYIt was a similar kind of thing. Valiant Pharmaceuticals bought up a couple of different drugs and overnight, basically, raised the price a couple hundred percent on each of them and so that was another concern, but it didn't get the same kind of media attention, but folks in Congress are interested and the Democrats want these pharmaceutical companies to come in and explain how they raised their prices and why.
BLOCKNeera Tanden, you've spent a lot of time working on healthcare issues over the years. When you look at the big healthcare picture, how much have drug prices gone up overall relative to other healthcare costs?
MS. NEERA TANDENSo I think that's a really important point to address. I mean, I think we talk a lot about these particular drugs, but it's also a problem that drug costs themselves are rising. Last year, drug costs increased 13 percent. That was double what other parts of the healthcare system were increasing by. It's actually become a driver of increased cost in the Medicare system. Medicare drug costs went up 11 percent. That really drove Medicare costs up 2 percent. Still low by standards, but it is the driver of costs.
MS. NEERA TANDENSo I think -- and if you look at the trajectory, we're looking at a system in which drug costs are a rising share of healthcare costs. They're planning to go up and up and up over the next several years. And so I think that reaction to this is that people experience drug costs themselves much more than other parts of the healthcare system because they have to pay more co-pays than elsewhere. And consumers, I don't -- I think consumers aren't just reacting to these particular issues. I think they're reacting to the fact that drug costs are pretty high for them.
MS. NEERA TANDENAnd if you see polls that were out before this incident, 77 percent of Americans think drug costs are too high and they believe drug companies are kind of profiteering. So I think we have to address the whole issue. I completely agree we should -- we need to insure there's innovation in the system. But that's the balance, how we get innovation for value because a lot of what's happening now is that we're not really getting that value.
BLOCKJulie Appleby, Neera mentioned polling on this question of how people feel about drug costs and the Kaiser Family Foundation has done a number of polls about this, right?
APPLEBYYeah, I've seen some of those polls. I don't work on those polls, but I have read them. People are very concerned about drug costs and I think you've got to look at it in two ways, though. I think they're worried about drug prices so that, in part, they're responding to news stories like this about this drug price that goes way up and other drugs coming on the market. But I think even more importantly, people are responding to their own rising co-pays and deductibles.
APPLEBYYou know, if you have insurance these days, you've got a deductible and it's going up and you have to pay that amount so people are paying a lot more out-of-pocket for these drugs and some insurance companies are also putting the higher cost drugs in what are called these specialty tiers where instead of paying, you know, 20 bucks for your prescription, you might pay a percentage of the cost, 20, 30, 50 percent. So that's really adding up and I think that's fueling these poll results.
BLOCKCraig Garthwaite, there in Chicago, what do you consider to be the main factors that explain why some drug prices are soaring in the way that they are?
GARTHWAITEWell, I think we should have a little bit of a distinction here between drug prices that are soaring in terms of drugs that exist and price increases go up of which we've seen some evidence and also the fact that we're having new drugs come on market that are just exceptionally high-priced. And this has been something we've seen for a while actually. We've seen oncology products that are sort of routinely at $100,000 for extending people's length of life. Why, I think, we're getting so much attention is that some of these high value drugs where we are providing a real value to patients in terms of extending their length of life are now going to bigger patient populations.
GARTHWAITEAnd so the total spend on that's going up. So for hepatitis C, when you have a million people that purchase a drug at $84,000, it gets a lot more attention from a pharmacy benefit manager like Express Scripts than you have for, say, Kalydeco, which is a cystic fibrosis drug that costs $300,000 a year, but has a patient population of about $5,000 people. And so the total amount we're spending is just less on that. We do see rising drug prices, that's true. We want to think a little carefully about what we're getting for that and then make a decision.
GARTHWAITEI sort of made this point earlier about society, about how much innovation do we want to have as a society. And as we lower profits, as Ms. Tanden says, we're going to probably get less innovation. We want to determine how much innovation we're going to get and I think that's frankly the conversation that we should be having at this point.
TANDENCan I just say something?
TANDENI think this is an important issue, which is the connection between innovation and profits. So we all want to insure there is innovation for value. I think that is a difficult assessment right now because it's hard to assess the value of drugs. So that's a critical challenge. But we also know that the -- pharmaceutical companies are actually reaping record profits right now and the connection between that level of profits and innovation is an important question, right? We would like pharmaceuticals to innovate on drugs that actually produce value. How much that is happening, we don't really know because we don’t have, in my view, enough transparency about what's really happening with drug costs, with drug companies.
TANDENThey aren't transparent about these issues so I think that is -- I think that's not an assumption. This is something we need to test out because there is a lot of profit-taking right now.
BLOCKWell, we'll follow up on a lot of those themes. Let me just take a quick break here. We're going to follow up on those questions about transparency and valuing drugs and profit and innovation after this break. Coming up, more of our conversation on the cost of prescription drugs. You're listening to "The Diane Rehm Show."
BLOCKWelcome back. I'm Melissa Block sitting in for Diane Rehm with a conversation about the cost of prescription drugs. This hour, I'm joined by Neera Tanden with the Center for American Progress. Also Julie Appleby with Kaiser Health News and Craig Garthwaite with Northwestern University's Kellogg School of Management. And before the break, Neera Tanden, you were talking about a number of issues, one of which had to do with transparency and what drug companies disclose about their costs -- what they spent on research and innovation, what goes into the pricing of a drug. Talk a little bit more about that, Julie, and what you see happening at the state level or at the federal level to work on that question.
APPLEBYWell, it's interesting. At the state level we're seeing a couple of different kinds of legislation being discussed. And one of them sort of -- of this transparency, a number of states, including Massachusetts, are looking at requiring drug companies to disclose, like -- How much do you spend on research and development? How much do you spend on marketing? -- basically to sort of justify the prices.
APPLEBYAnd Massachusetts would take it even further. For some cases, if this would pass, they would actually set some price caps. So we're hearing that discussion in a number states. This is obviously not something the drug industry wants to do and so they are strongly opposing it. And that's one of the issues of transparency that we're seeing in the states.
BLOCKA reminder that we are interested in getting your calls on these questions. If you'd like to join us, you can call 1-800-433-8850. Or you can send an email to firstname.lastname@example.org. You can also find us on Facebook or sent us a tweet. And we have gotten an email from Judy in Salisbury, Md., who writes this: There is one primary reason the U.S. public pays more for pharmaceuticals and that's because, unlike Canada and other governments, we don't negotiate price. In fact, Americans subsidize the world's drug supply. She says, My friend saw his diabetes costs rise $5,000 over the last two years. That's out of pocket and not tax-write-off. It is criminal. That's from Judy in Salisbury, Md.
BLOCKNeera Tanden, talk a little about that because you were involved in crafting the Affordable Care Act with the Obama administration. Drug prices were not part of that legislation in the end.
TANDENNo. I mean, that legislation was much more about access to health care and about insuring that we lower costs overall. And it didn't really tackle individual costs like pharmaceuticals and, in fact, took some steps to make pharmaceuticals more affordable to seniors but not on really the cost side, just access side. So that was an important issue. This has been a long-standing debate. The United States could negotiate drug prices in the sense that the Medicare program, which is the largest purchaser of prescription drugs, I mean, currently prohibited from negotiating and using its bargaining power to negotiate with the pharmaceutical companies.
TANDENAnd this is a challenge, right? Because right now we have a situation where a company can have the -- can basically have exclusivity of a drug, and they're negotiating with a whole range of insurers. Instead, in other countries, that pharmaceutical company is -- has this price and it's negotiating with the large entities. So they're sort of evenly matched. In our country, they're not evenly matched. The pharmaceutical company has exclusive rights and they're negotiating with a large number of people who can't really drive down the price. So that's one of the issues. You know, we're really not dealing with a normal market.
TANDENAnd so a lot of people have argued, and a lot of policymakers have argued now on the presidential trail -- both Hillary Clinton and Bernie Sanders have called for allowing Medicare to negotiate drug prices. And when the VA negotiates for prices, it is a -- it basically gets a 10 to 20 percent discount with all the drugs. So I think that is an important policy arena, something we should be discussing.
BLOCKIf Medicare were to negotiate drug prices though, what does that mean for anybody who's not on Medicare? Does it drive up prices for anybody else?
TANDENIt's possible that the costs could be shifted to folks with other kinds of insurance. It's equally possible that other insurers and other purchasers would look at the Medicare price and say, We want that one too. And so it could actually bring the costs down if they were successful in lowering prices in Medicare through negotiating.
BLOCKHmm. Craig Garthwaite, we have an email from Carl Anna in Pittsburgh, Pa., who asks: Why doesn't the federal government and universities start up a nonprofit pharmaceutical company to compete with these companies? What about that idea?
GARTHWAITESo, I mean, I think that the -- I'm guessing that what we're talking about here is competing with someone like Turing Pharmaceuticals for these small market drugs -- and that's probably the best way to do this. To have either the government or some other large nonprofit, say someone like the Gates Foundation, start a company that would be willing to make these drugs that would effectively would be a loss, competing with someone like Turing Pharmaceuticals. And then we could solve the issue of sort of these small, orphan drug markets.
GARTHWAITEIt's not going to solve the issue we sort of spent the last 10 minutes talking about, which is sort of the overall amount of money we're spending on drugs, because these are relatively small patient populations. If we want to do that, we can follow the solution of having Medicare negotiate for prices. And surely, Medicare will use sort of its large buying power. It would be a monopsonistic buyer. They'll bid down the price of drugs. Drug manufacturers will earn lower profits. And there's a lot of very good, peer-reviewed academic research that shows that, if we do that, we're going to have fewer chemical entities coming on to the market.
GARTHWAITEAnd that might be okay. That's just -- that's a conversation we want to have, to have that -- have less innovation, have fewer drugs coming on to the market. But that's what's going to happen. All right? It's not a case in which we can somehow have a free lunch here, where we can have both lower prices and fewer drugs coming -- and the same amount of drugs coming on to market. That's just not going to exist.
BLOCKNeera Tanden. Yeah.
TANDENYeah, so I think this is -- I think the frustration a lot of people feel in the country is a little bit -- and maybe they don't think about it in these terms -- but it seems like the American consumer, in a way, gets the worst end of the stick on both ends. Right? So we do actually invest a lot as a country in medical research, through the National Institutes of Health.
TANDENThe United States is a large-scale investor and essentially the basic research that funds the pharmaceutical industry. And on the other hand, other countries are negotiating prices directly that are lower than what consumers cost -- what consumers pay in the United States. So, in a sense, the American consumer, with its high costs and paying taxes, is heavily subsidizing the pharmaceutical industries' ability to exist in the world. So these medical breakthroughs we get in the United States actually do affect the world. So it's just a -- it's a confusing system, right? Because we do make these investments and then the American consumer is supposed to pay the highest price.
TANDENSo that seems -- I mean, we need a system of innovation. We also need to be able to evaluate the value of these innovations because another concern is that we get, you know, not real innovation. People -- pharmaceuticals will create a drug. They market it heavily, right? So they create consumer demand. And it actually does not create a great value. And currently the FDA is not able to evaluate the value of a drug versus other therapies. So we don't, you know, when you're selling computers, people can evaluate the benefit of it. We have less ability to do that in the pharmaceutical industry. And so I think that is a real challenge we have going forward.
BLOCKCraig Garthwaite, there are folks who have tried to figure out a way to value drugs, right, to come up with a calculus to figure out how much quality of life or how much extension of life they provide?
GARTHWAITEYes. You know, we definitely have. And I would say actually valuing how cost-effective a drug is...
GARTHWAITE...is not really the problem. We have pretty good ways of doing that. I would say that it's also unrelated to the cost of how much it is to develop the drug, right? So this idea that if we make people disclose how much it cost to develop a drug, that's going to let us know what the value is. No, the value that comes from a drug is sort of what it does for people's length of live, as you say...
BLOCKFor outcomes, right?
GARTHWAITE...for their quality of life, right, not just their length. We spend a lot of money on drugs, like painkillers and things that can improve people's quality of life. So you want to think about that as well. We have ways of doing that. So I don't think that really is the problem. The FDA currently, as Ms. Tanden says, is not allowed to talk about sort of the comparison of the drug to existing therapies. But I will say, to the extent that we get, you know, what are often derisively called me-too pharmaceuticals on the market -- so we have lots of different statins on the market, we have now two cures for hepatitis C on the market -- those tend to lower the prices of their competing drugs.
GARTHWAITESo, for example, in the hepatitis C market, Sovaldi came out at $84,000. A year later, AbbVie brought out a competing cure, Viekira Pak, which is almost as good as Sovaldi. And we've seen price increase -- or price decreases in the market of upwards of 60 percent for this drug. And that's being enjoyed by all Americans, not just people on Medicare. Because once you had a sort of another drug that provided some similar therapeutic efficacy, we saw prices go down. So we shouldn't think that only novel therapies are things that generate value for consumers because there are big benefits to consumers of the lower prices that come from competing drug products.
TANDENI mean, I would agree -- I absolutely agree. When a new drug is coming out on the market that's creating direct competition for very expensive drugs, that is a true benefit. But I do think one of the challenges we have in a system where issues -- things are not that transparent, I guess I would just disagree. You know, there are some private-sector efforts now to really evaluate the value of a new drug versus existing therapies. But I would say a lot of insurance companies, others who are trying to establish value, really feel like they cannot do that at this point. Maybe we just disagree on that point.
BLOCKWhy doesn't that happen more, Julie? Why is there not more progress toward valuing drugs and assessing the value of drugs?
APPLEBYYou know, it gets into being a really difficult conversation. What do you value it on? Maybe you value it on reducing hospitalizations. But then there's also this whole quality-of-life issue and how do you value that? So I think it gets to be very complicated and it gets tied up in some of the conversation around, are we going to be rationing care? If we say this drug doesn't provide enough value for its cost, are you then keeping people from getting that drug? So I think there's a hesitancy on the part of a lot of people to discuss the value in that fashion.
APPLEBYBut we are seeing more of it. There was just a report out about some -- two new treatments for congestive heart failure, the first two new treatments on the market. And they compare them and they -- this group said one of them was cost effective in the long term, but they both really needed to lower their price quite a bit. So there are some of these things coming out.
APPLEBYAnd I think another interesting area that we are starting to see, there's been some new stories about paying for how well these drugs work. So, for example, Express Scripts, which is this big pharmacy benefit manager, said they are talking with drug makers to pay different prices for cancer drugs based on how well they work against different types of tumors. So let's say you've got one drug that works really well on a certain type of cancer. You might pay more for that drug when it's used on that kind of cancer, but pay less when it's used on a different kind of cancer. There's not a lot of details on this yet. It's still being worked out. But that's a really interesting development that some people are talking about paying for value.
BLOCKWhat do you think about that idea, Craig Garthwaite, in Chicago?
GARTHWAITESo again, I think it's actually a really interesting idea. I think what we're getting out here is the idea that the traditional pharma model of sort of pay by dose might not be the right way of thinking about it. That we want to sort of make it maybe that you get -- pay more if the drug is more effective. Or maybe, you know, your insurance company is sort of, is going to pay less if you want to use drugs off-label that aren't proven for success. So, and this happens a lot in oncology where, you know, drugs that are good for colorectal cancer end up getting used for breast cancer, and they're really not very good for breast cancer. Avastin would be an example of this.
GARTHWAITEAnd, you know, maybe the insurance company will say, Listen, we're not going to pay for that anymore. We're only going to reimburse drugs when they provide true value to the customer. We do have ways of doing that. I think that it's clear. It's hard, right? I mean, because it gets into -- particularly in oncology -- it gets into some very difficult conversations we want to have, which is how much do you value six weeks, six months of live?
GARTHWAITEAll right? Who gets to determine what that value is? I think it's really easy, even as an economist I can say, it's easy to do that when it's someone else. If it was my wife or if it was my mother, that's a harder conversation to have. And so that's where we do get some difficulty here.
BLOCKSure. And, Neera Tanden, that question becomes always politically charged.
TANDENAbsolutely. I mean, one of the issues that we're talking about is -- really touches on comparative-effectiveness research, which is, you know, and idea a decade ago that a lot of actually conservative and, you know, liberal minded health economists believed in, which is that we need to ensure there's, you know, we need systems by which we measure the efficaciousness of drugs and doesn't exist.
TANDENBut when that debate started moving in to the Affordable Care Act, it became highly charged. All of a sudden a lot of people who supported it, considered -- called it rationing of health care because they didn't, you know, if you make a determination that there isn't value to this, then you're making a determination not to provide coverage or care. So it gets very politically charged. I think, at the end of the day though, we are going to have to find some new solutions and new ways to address these challenges. Because it is, you know -- in a system where people are paying more out-of-pocket for health care, prescriptions drugs are going to eat more and more into their wages, et cetera.
BLOCKI'm Melissa Block with NPR. You're listening to "The Diane Rehm Show." And if you'd like to join us, call 1-800-433-8850. Or send an email to email@example.com. You can find us on Facebook or send us a tweet. We are talking this hour about the cost of prescription drugs. Let's bring in a call from Steve in Oklahoma City. Steve, you're on the air.
STEVEThank you very much. My question and comment is, I recently had to have a dermatological drug. I need four doses of it, each dose is $725 for two very small tubes -- I mean, less than an inch-long tube. But the point of that is -- luckily I have insurance -- but it came with a discount card...
STEVE...that, at the doctor they said be sure you show this to the pharmacist when you go. I showed it to the pharmacist. They enter all of the information and I pay my normal co-pay of $25 for the $725 medication. I'm like, what is the purpose of this discount card?
STEVEIt made no sense.
BLOCKJulie Appleby, can you help us with that? I've seen these discount cards, too. Is it a way of luring you in and getting you hooked on a drug?
APPLEBYYeah. It's interesting that he still paid his deductible. Because the ones I've seen -- some of these drug companies have these patient -- systems programs where they will pay the co-pay and deductible for somebody for a -- on a big-ticket item like this, so that they don't have to pay the co-pay. And critics say that is kind of a marketing plug, because it's getting people to take this expensive drug and they're paying their co-pay. It's pretty cheap for a drug company to pay a $25 co-pay on a $700 drug. And somebody -- the insurance company or somebody is paying the rest of it. But I'm not quite sure how Steve's worked.
BLOCKMm-hmm. And Craig Garthwaite, any insights on that?
GARTHWAITEYeah, I mean, I think Julie's right. That's what we tend to see these used for. And particularly we see them when we get into these specialty markets where people are trying to use it to deal with larger co-pays. It's a way of the pharmaceutical company to try and unwind the cost-sharing that the insurance company has put into place to try and have the patient think more carefully about the value of the drug to themselves as they purchase it. That's why we have co-pays, that's why we have co-insurance. Pharmaceutical companies don't like that because it reduces the consumption of their drug. So now they're giving these coupons or these discount cards to sort of unwind this process.
GARTHWAITEInsurance companies don't like this, obviously, because it's going to increase the utilization of the drug. And so, if these become widespread, what you'll see is that if we don't have these co-pays and co-insurance effectively being used, premiums will go up for everyone. That'll be sort of how this unwinds.
BLOCKNeera Tanden, you wanted to jump in here.
TANDENI think this just goes to one of the issues here, there, right? There's this -- there's the -- this back-and-forth between the insurance companies and the pharmaceutical companies. But really, consumers -- the challenge here is the consumer has very little ability to evaluate how much they need a drug. Usually, a doctor tells you to get a drug and it's hard for you to determine...
TANDEN...I don't really need it or I do really need it. And so that's another way in which pharmaceuticals are a little bit different from every other -- most other things we purchase. Because we really feel like we cannot evaluate these issues. I mean, essentially, insurance companies are providing these co-payments to have people have more skin in the game of the costs. But this is an arena where it's a little bit difficult to do that.
BLOCKAnd pretty mysterious for a lot of consumers I think, Julie.
APPLEBYYeah, it is. You know, as Neera said, here you have your doctor, you know, this learned person, telling you you need this drug. And it can be very difficult to say, you know, do I really? And then, if you do, to say to the doctor, well are there any alternatives? Is there a less expensive alternative? Maybe this drug that you've been prescribed is a new drug that is a slow-release drug. It's a new formulation of an older drug, then maybe you only have to take one pill a day and you have to weigh whether that's worth the convenience -- the cost is worth the convenience versus the older drug.
BLOCKThat's Julie Appleby with Kaiser Health News. Coming up, your calls and questions. Please stay tuned.
BLOCKWelcome back. I'm Melissa Block with NPR News, sitting in for Diane Rehm. And I'm joined, to talk about the cost of prescription drugs, by Neera Tanden, President and CEO of the Center for American Progress. Also, Julie Appleby, Senior Correspondent for Kaiser Health News. And joining us from WBEZ in Chicago, we have Craig Garthwaite. He is a Health Economist at Northwestern University's Kellogg School of Management and has done a lot of research focusing on drug prices.
BLOCKJoin the conversation. We ask you to give us a call at 1-800-433-8850. You can also send us an email to firstname.lastname@example.org. Or find us on Facebook or send us a tweet. We have gotten a bunch of emails asking about how advertising figures into the cost of drugs. Here's an email from Gordon. Can you discuss why it is that we are the only country in the world now that still allows TV commercials for prescription drugs? Another email from Janet who asks, who says, so much of drug sales now are consumer driven with glossy ads and ask your doctor exhortations.
BLOCKMost doctors have no clue about the prices of drugs that they prescribe. And in a similar vein, from a listener named Kathy, drug companies spend more on advertising than Pepsi. This is insane. Who wants to take this on? Julie Appleby.
APPLEBYWell, this is a very interesting issue. In fact, Hillary Clinton has said, in her proposal, that she would eliminate the tax write offs that drug companies get for this advertising and marketing, basically, which would be very interesting to see how that would play out. The drug industry has friends on both sides of the aisle, so it's hard to know if this would pass. And...
BLOCKTax write offs. What kind of tax write offs?
APPLEBYIt's the cost of doing business. So, you run an ad. So, you would try to eliminate that instead of going at it directly and saying you can't advertise. I think that would run into a lot of free speech issues. But this is also going to draw a lot of opposition from media companies. So, they make a lot of money as well, selling these ads.
TANDENI mean, it is interesting. I think this goes to a broader point. I mean, from the analysis that we can see, companies are actually spending more on marketing than R and D, and I think that is a frustration. I mean, I think we all want pharmaceutical companies to invest in research and innovation. That is the argument that they articulate, that they are spending all these resources, but it seems, you know, I'm finding the next therapy, the next solution for you. But I think the challenge is you need -- MERCK is a good example. MERCK spends two billion dollars more on marketing than it does on R and D.
TANDENAll the major companies, for the information we have, they do spend a lot more on marketing. And the question is, does that drive a kind of system in which people are pushing for drugs. You get these ads saying, ask your doctor about this drug and what it will do for you. And we don't actually know that it's a better drug. It's just more expensive and again, many doctors don't know how much it's going to cost you to give you that drug. So, we have a system in which no one -- like, costs are kind of getting shifted around and we all end up paying more. Because insurers, insurance costs are going up for these things.
BLOCKCraig Garthwaite, you have looked at innovation in the pharmaceutical industry, and this is always the point that is made by drug companies and those who support them. Right? That the cost of drugs, the high cost of drugs, sometimes, is justified by the fact that it spurs innovation. Is that a fact or are those profits sent to shareholders?
GARTHWAITESo, there are a couple ways to think about this. The first is, we see this statistic coming up a lot now about major pharmaceutical companies spend more on marketing than R and D. That reflects a couple things. One, they do spend a lot on marketing. This is a full stop. That is true.
BLOCKWe all see that every day on the TV.
GARTHWAITEYeah, and they also -- you don't see the money they spend when they market to positions with detailing, too.
GARTHWAITEBut beyond that, what we want to make sure we understand that it also reflects a little bit of a change in the way the drug industry does research now, which is we see a lot of smaller biotech companies that are doing research. And they got bought by a company like MERCK at some point in the stage of development. Those costs don't get booked as research and development. They get booked as sort of an acquisition cost, which is some combination of research and development costs and on future expected profits.
GARTHWAITESo, I mean, it's not really clear, necessarily, that we see this massive amount more on marketing than research and development. But more broadly the question of, you know, do we see a connection between innovation and new products? It's clear. And it's not just my work. Amy Finklestein at MIT is probably one of the most preeminent health economists in the country right now has work showing this. (unintelligible) at MIT also has work showing this where we see that as you see the profitability of a potential market increase.
GARTHWAITESo, my work showed that say, when Medicare part D was passed, then we thought we'd have more prescription drug coverage for seniors, you saw more research at products that were targeting seniors. So, you would see a shifting of maybe a research towards Alzheimer's and away from juvenile diabetes, right? That would be the type of thing you would see. You'd see a relative change in how you're spending your research dollars. So, we see that innovation follows profits. And that's not hard to understand. The question then becomes, I said this a couple of times, how much innovation do we want?
GARTHWAITERight? It might be, I know we don't like to think about this, but it might be that we have too much innovation going on or that we are subsidizing innovation for the entire world. Which, I agree with Neera, that's not a great situation. I don't like the fact that the idea, that the American consumer subsidizing research for the entire world. I think that I like it more than that research not happening. Right, which is -- which might be the outside option that we consider. We negotiate broadly, like, nicer in England or the Canadian drug authorities.
GARTHWAITEAnd bring prices down and bring profits down. We might see a wholesale decrease in the amount of innovation we have on the market. I think that might be worse, but this is a conversation. This is the conversation we should be having. It's a less politically appetizing conversation, I think, than demonizing drug companies. That seems to be a much easier sell politically, to say, oh, it's these greedy drug companies than maybe we just want fewer new drugs in the United States. Maybe that's what we need to have given where our national income is at this point.
BLOCKLet's go to the phones and bring in a call from Joseph in Orlando, Florida. Joseph, you're on the air.
JOSEPHThank you. I would just like to share a personal experience I had, which I think may be relevant to this discussion. In the year 2000, I was in San Diego. My daughter came to visit me and she wanted to cross the border at a checkpoint, into Mexico, just to see it. And we did that, and I have a memory in mind. It won't go away. To me, it's very sad. The first thing we saw upon crossing the border was, lined up in front of a drug store, a pharmacy there, in Mexico, 30 or 40 elderly Americans waiting to buy pharmaceuticals. That is so sad.
JOSEPHAnd my understanding is it still continues. The same thing goes on at the Canadian border. So, I think, in my mind, there's a bigger question here. Question is, how do we balance, like, a free enterprise capitalist system with a fair share of humanity, you know? And I think that's why Bernie Sanders is getting so much attention. Many Americans know there's something wrong with that picture at the border.
BLOCKOkay, Joseph, thanks for your call. Who wants to take that on? Neera Tanden?
TANDENYou know, I actually think this direct issue is being responded to in the political process. I mean, both Bernie Sanders and Hillary Clinton have supported drug re-importation. And drug re-importation is so that Americans can get the same prices of Canadians. In a way, that is a blunt instrument to deal with these cost challenges we're having. But I think it shows you that people see a very significant unfairness to this broad issue we were discussing.
TANDENWhich is that people in other countries have much cheaper drugs than in the United States. And again, we are subsidizing the development of these drugs through our research dollars. I mean, I think there is an important discussion about the level of innovation we should have. But just to respond a little bit to Craig's point, I think the challenge here is also, everybody wants us to find the next cancer drug, the next drug that solves the problems. And it's not easy to know what that is.
TANDENBut we do, I do think there is a challenge in our system where there are a lot of me too drugs that aren't providing a lot of competition in the system. That there is a lot of investment in marketing and production that basically helps create a consumer demand that is driving profit -- high profitability in the pharmaceutical industry. So, we have this challenge. We all benefit from pharmaceutical innovation. We can't equate innovation with value. Right? You can innovate in a range of areas. We all want innovation that provides real value to consumers.
TANDENThere does seem to be a fair amount of investment innovation that is just a new drug that does not actually, is not better than alternative therapies.
BLOCKYeah. Let's go back to the phone.
BLOCKLet's go back to the phones. In one second, Craig, I'll bring you back in. But let's go to the phones and bring in a call from Mike in Connecticut. Mike, you're on the air.
MIKEHi, good morning. And I am a 20 year pharmaceutical sales professional, and I am in no way a toady for our industry.
MIKEYou guys are having just a fascinating discussion. And I really appreciate it. But, you know, the questions that I have in being in all facets of healthcare, for the last 20 years, is, you know, the pharmaceutical companies are at fault to a point in a lot of areas. Okay? And, you know, your last caller brought up a good point. You know, how do you balance innovation and me too drugs? And I totally understand that. But, you know, then the other question that I think about is, for instance, with chronic diseases.
MIKEWhen you look at overlay maps of the United States and you look across the whole deep South, the level of high cholesterol and diabetes and all the issues and challenges with health and these chronic diseases in these folks. So, I think about, you know, the personal responsibility of Americans to, quite honestly, try, maybe to be a little healthier. You can't drive by a McDonald's, at least here in Connecticut, at lunchtime, without having 20 cars on a drive thru. So, essentially, now, people are getting too lazy to get out of their cars and go to McDonald's, you know?
MIKEAnd then I think about, why is there a CVS and a Walgreens and a Rite Aid on every corner, you know, in America? You know, because they're obviously making insane amount of profits on these products also. You know, so it's -- I understand it's the companies.
MIKEThat, you know, I've been in oncology, I've had these 100,000 dollar drugs that, you know, have six month medium duration of survival. But, you know, then again, these are studies on M stage patients as most oncology drugs are. You don't test oncology drugs on healthy cancer patients. So, I know there's a lot of issues. But, you know, and I know that I'm talking a lot. But the last thing, I used to visit my parents at this retirement campground they used to go to out in southern California, right? So, it was a bunch of 70-year-olds sitting around in their hot springs, drinking their martinis, eating their steaks.
MIKEAnd smoking the Camel unfiltered. And then complaining to me about the cost of the Lipitor.
BLOCKAll right, Mike, thank you for your call. Lots to chew on there. Who wants to take that on? Craig, Julie, who? Julie.
APPLEBYWell, this is really getting at a really big issue that the public health folks have wrestled with for a long time, is how do you get people to change behavior? And there's not a simple answer and it's very complicated. But I think Mike touches on an issue that's gonna become more and more of a focus, particularly for Medicare as people retire with heart disease and diabetes, these types of conditions that cost a lot of money. We've got a lot of great new drugs that help people, but these are chronic conditions, meaning you take the drugs for the rest of your life.
APPLEBYAnd it's expensive, so this is not -- there's not an easy solution to this, but it is certainly a debate.
TANDENSo, you know...
TANDEN...I think that the issue here is we've had chronic disease be a big driver of healthcare costs for a very long time. And I absolutely agree with the caller that we can manage these issues a lot better. People should be healthier. That doesn't take away from the point, though, that we've seen this really large scale increase in pharmaceutical company drugs. I mean, pharmaceutical prices over the last year. And it is driving healthcare costs more than it has in the past.
TANDENAnd consumers are facing, I mean, these things can both be true. We can have a challenge with pharmaceutical drug prices and have a system that people should invest more themselves in being healthier. But that is a long term challenge and we have to, I think we do have to kind of manage the prescription drug prices costs while we go.
BLOCKSo, personal responsibility in tandem with corporate responsibility. I'm Melissa Block. You're listening to The Diane Rehm Show. And finishing up our conversation this hour on the cost of prescription drugs. Let's turn to the political implications of this just a bit. Neera Tanden, as we've mentioned in the course of the hour, this has become part of the political conversation, both Hillary Clinton and Bernie Sanders have come up with ideas about what to do about this.
BLOCKAnd in particular, spurred on by this question of the drug Daraprim and this astronomical price spike. What do you see shaping up in the campaign for 2016?
TANDENWell, Senator Sanders put forward an idea, I think about a month ago, and he raised a number of ideas that we've already discussed. He talked about Medicare negotiating, drug prices, he talked about re-importation. He talked about prosecuting fraud when we find it. And he talked about pharmaceutical companies basically having sort of sweetheart deals with doctors. And how that's a big challenge. These are a number of ideas that have been out in the discussion and debate.
TANDENAnd I would say Julie is absolutely right. They have not gotten a big airing in Congress. But I do think there's renewed interest. Hillary Clinton proposed ideas. She has embraced a lot of those ideas in the past, has worked on many of those ideas when she was a Senator. But also...
BLOCKWhen you worked for her, we should say, I guess.
TANDEN...when, I did. I should say, I did work for her. So, and she added some new ideas. She talked a little bit more about comparative effectiveness, being able to evaluate the value of drugs. And also, insuring that we really have systems by which we know drug companies are actually innovating. So, she took a principle that we've used with health insurance, something called medical loss ratio. Which is -- insures that either insurance companies provide most of the premium cost to coverage or they rebate people.
TANDENShe took a similar principle. That has actually meant two billion dollars in rebates to consumers so far.
BLOCKAnd what about on the Republican side?
TANDENSo, on the Republican side, we haven't seen too many proposals. Donald Trump has railed against this particular issue at Turning, but there haven't been particular ideas, I mean, usually, the debate on healthcare on the Republican side has been about repealing the Affordable Care Act. And they haven't really gotten into specific ideas on any other sets of issues.
BLOCKJulie Appleby, there is also an argument from the conservative or the Republican wing that more regulation ultimately hurts consumers, drives up prices, makes companies unprofitable, bad for everybody.
APPLEBYAgain, it goes to this question about innovation. But I think that there is definitely a concern in the industry, if you just look at the biotech stocks in the last few days, they've gone down. They're really worried that something might happen. I don't see a lot of discussion about straight on price controls, but they are worried about what might happen, what other ideas might come up around this issue.
BLOCKLet me fold in one email that we got earlier from Catherine that ties in with this political conversation that we're having. She asks, are big pharmas donations to political campaigns the reason for lack of aggressive action on drug costs? Neera Tanden, I have a feeling I know what you're going to say to that question, but why don't you go ahead and take it on?
TANDENYou know, I mean, to be candid, I think that the -- that we have a challenge in that we have not seen a lot of action in the Congress on these issues. And I'm not going to ascribe that to one thing or the other. But we should note that the pharmaceutical industry is a very generous contributor, and frankly, very generous to both parties.
BLOCKAnd hugely powerful.
TANDENVery powerful. I mean, disproportionate. But, you know, I think the challenge here is also we do want to ensure a system where we have real innovation, we want to keep the pharmaceutical industry, definitely profitable and innovating. It's just whether we can balance the needs of consumers a bit better.
BLOCKAnd Craig Garthwaite, you get the last word.
GARTHWAITEI just want to say, when we want to balance this innovation, this idea of the medical loss ratios in the insurance industry was thrown out. I think it's important to realize that, you know, I teach strategy here at Kellogg. The first thing I teach students is context is really important. That the insurance industry and the pharmaceutical industry are vastly different. Insurance companies can't control the medical spending they have. It's dictated by patients.
GARTHWAITEBut if we require insurers to spend a certain amount of their money on research, they're just going to do more research. They're not going to lower prices. And we're going to get more innovative drugs, but they're going to be drugs that the pharmaceutical companies probably thought weren't socially beneficial. That's why they didn't research them in the first place. And we're going to get more drug spending out of this. It's a pretty naive way of thinking about how this industry works.
BLOCKAnd thanks to the three of you for joining us for this conversation. Craig Garthwaite at the Kellogg School of Management at Northwestern University. Julie Appleby with Kaiser Health News and Neera Tanden with the Center for American Progress. I'm Melissa Block with NPR sitting in for Diane Rehm. Thanks for listening.
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