How big pharma keeps drug prices higher for longer

Billy Kenber, author of Sick Money, explains how manufacturers circumvent competition

The nature of drug research, how drugs are priced, and who has access to them is now dictated by corporate shareholders. At the same time, patients in need of life-saving or life-improving medicines are increasingly driven to the internet in search of drugs that national health services cannot afford.

This is the premise of a new book, Sick Money, by journalist Billy Kenber, who has taken a deep dive into the harrowing business of the pharmaceutical industry.

Throughout the book the author investigates issues around the complex process of drug pricing, and how it is manipulated, and abused, for corporate gain. For those who remember, the book is somehow a welcome addition to Ben Goldacre’s Bad Pharma published in 2012.

While that book looked at issues around data manipulation in clinical trials during the drug development process, here Kenber takes aim at the economics of the beast. According to the author, the system around drug development, which was designed to drive innovation in patient care, has been relentlessly distorted over the past few decades to drive up profits.

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Conor Purcell interviewed him via video call between his home in Co Donegal and the interviewee’s in the UK.

How did you become interested in the problems around drug pricing?

Well, the book really has its origins in something I uncovered during my day job where I was investigating a drug price scam here in the UK.

A number of companies had found a way of taking old medicines – generics – which had been very cheap and dramatically increasing their prices; sometimes overnight. Many patients were then taken off the drug because it had become so expensive, costing the NHS huge amounts of money.

I then became interested in how this had arisen, how this was possible in the first place. So the more I spoke to people and the more research I did on the subject, it gradually became apparent that this wasn’t just a case of a few bad apples.

It turned out this abuse of the pricing model was a symptom of a whole bunch of wider changes that had swept across the pharmaceutical industry, in many ways unnoticed, over the past number of decades. These changes have in fact altered the way in which drugs are developed, and explain why there are now so many access issues for medicines, even in wealthy nations.

How are these dramatic increases in generic drug prices allowed to happen?

I’ll speak mostly about the NHS here, but the systems are similar worldwide, and have implications for Ireland too. The NHS has rules around how it prices medicines, but there are different categories of pricing for different drugs.

Broadly speaking, the NHS has a focus – like most health systems – on new drugs, because those are the ones with a huge price tag, often in the tens or hundreds of thousands per patient per year. But then, once the patent protection ends on newer drugs – after a period of monopoly by just one company – these can be manufactured by other companies and become what are known as generics, which are cheap because of the competition.

Now, the focus of health systems has not really been on these older generic drugs, because they are just assumed to be cheap. But in the cases which I explore in the book, there happened to be just one company making them, often because they were quite niche and very old.

That meant that the companies could simply increase the price as much as they wanted, essentially overnight, and know that the patients, or their health providers, would have no other option but to pay.

So it’s really the free market which helps to bring down the price of drugs?

Yes, when the system works as it should, it works very well, and you get generics cheaper than any sort of state-owned manufacturer might be capable of doing so.

We need competition so that drugs can become affordable – as generics – so to improve access to people in all income brackets. I think that going forward there needs to be some kind of capacity within society to manufacture generics and intervene when the free market isn’t working.

In fact, we’ve seen some new companies launched last year in the US where hospitals or philanthropists are exploring not-for-profit, generic manufacturing models specifically to tackle these kinds of issues.

What are some of the common strategies employed by corporations to maintain high prices?

One of the things I discuss in the book is this idea that there is a kind of social contract which drug companies and society entered into when they agreed to allow a period of corporate monopoly before the competition comes in and brings the prices down.

In that way the medicine then becomes a gift in perpetuity to society available at a relatively low cost. That’s the sort of framework that incentivises researching new drugs, which is very expensive, difficult and risky, while also ensuring that those drugs can be accessed by those who need them. That’s a balanced approach and is how it should work.

But this has been distorted by the various ways in which drug companies have sought to extend the monopoly over new drugs, often employing legal tricks. Sometimes corporations use something called “pay-for-delay” agreements where they pay a rival company to stay out of the market for a number of years.

This extends the period of monopoly and prevents the development of cheap generics. We’ve also seen deals – sometimes illegal deals – essentially collusion between companies to split the market and ensure prices remain high. All of these strategies are essentially about discouraging competition, which is the crucial element to make this system work for patients.

How do you propose we fix the system and is it possible?

I think it’s essentially about restoring that original social contract and regaining the balance between incentivising drug discovery and ensuring access for people. There’s no point in developing brilliant new drugs if patients can’t get them. We need to develop methods which aim to prevent the corporate price-holding and price-hiking strategies that are being adopted.

Generally speaking, the problem stems from the US market where the incentives are all skewed. For example, in the US there are categories of medicines for which hospitals would rather use more expensive drugs because of the way in which their reimbursement is calculated.

The net result of that is this situation where you’ve got drugs for cancer and rare diseases remaining at the most expensive prices for 20 years after a drug comes to market – that’s far too long. So I think there’s a role to play for the assessment of cost effectiveness in the US market to restore a degree of rationality via large-scale structural changes which can then have an impact worldwide.

Conor Purcell, PhD writes about science, society and culture. He can be found on twitter @ConorPPurcell and some of his other articles at cppurcell.tumblr.com.