End­ing drug com­pa­nies’ mo­nop­o­lies is first step

Austin American-Statesman - - VIEWPOINTS -

The news that Pres­i­dent Don­ald Trump takes the anti-bald­ness drug Prope­cia has tem­po­rar­ily bumped his war against the pharma sec­tor from the front pages. Be­fore his doc­tor of­fered this juicy tid­bit, the fo­cus was on Trump’s com­ment that drug com­pa­nies were “get­ting away with mur­der” and his threat to au­tho­rize Medi­care to ne­go­ti­ate lower prices.

Wall Street took Trump’s re­marks se­ri­ously, caus­ing pharma stocks to tank. Pharma CEOs did, too. Sev­eral pledged to limit fu­ture price hikes to 10 per­cent per year.

Not all pharma ex­ecs were cowed though.

Jef­frey Aronin, CEO of Marathon Phar­ma­ceu­ti­cals, stuck with big pharma’s his­toric game plan. Af­ter Marathon gained ap­proval from the Food and Drug Ad­min­is­tra­tion for de­flaza­cort, a treat­ment for mus­cu­lar dys­tro­phy that has long been avail­able in other coun­tries for about $1,000 a year, he an­nounced that the drug would cost $89,000 a year in the U.S. When ac­cused of price goug­ing, he cited re­search and de­vel­op­ment costs and pointed out that most of the money comes from in­sur­ers. Both ex­cuses are phony. Marathon can de­mand an ab­surd price be­cause it has a monopoly on de­flaza­cort, an “or­phan drug” that treats a rare disease. Un­der the Or­phan Drug Act, the FDA’s ap­proval gave the com­pany the ex­clu­sive right to sell the drug in the U.S. for seven years. Marathon is goug­ing con­sumers, in­sur­ers and pub­lic pay­ers sim­ply be­cause it can.

Mo­nop­o­lies are the big­gest rea­son that drug prices in the U.S. are so high. Man­u­fac­tur­ers ac­quire them in a host of ways. Some are le­gal. Others strad­dle the line.

The le­gal means in­clude ob­tain­ing patents on new drugs, prov­ing that or­phan drugs and unap­proved drugs work, and us­ing tweaks such as pill coat­ings, timed-re­lease for­mu­las and re­designed de­liv­ery sys­tems to make patents last longer. The shady means in­clude col­lu­sive lit­i­ga­tion set­tle­ments that stave off generic en­try for years, par­al­lel pric­ing by man­u­fac­tur­ers of sim­i­lar drugs that should be com­pet­ing and in­for­mal agree­ments among man­u­fac­tur­ers not to in­vade one an­other’s turf.

Mo­nop­o­lies ex­plain why pharma com­pa­nies can raise prices on ex­ist­ing med­i­ca­tions, some­thing they rou­tinely do. Car­mak­ers can’t charge more for last year’s mod­els. Nei­ther can com­pa­nies that make com­put­ers, cell­phones or flat screen TVs. But pharma com­pa­nies raise prices on ex­ist­ing drugs year af­ter year. Be­ing the sole sup­pli­ers, they can set prices as high as they like know­ing that they have Medi­care, Med­i­caid, pri­vate in­sur­ers and con­sumers over a bar­rel.

Trump’s idea of let­ting Medi­care bar­gain over prices won’t help much be­cause Medi­care can’t re­ally refuse to pay for drugs that are over­priced. The first time it of­fers cost as a rea­son for re­fus­ing to cover a med­i­ca­tion, cries of “ra­tioning” and “death pan­els” will fill the air. That’s the third rail of health care pol­i­tics, so Medi­care won’t go there.

A bet­ter ap­proach would be to do away with mo­nop­o­lies, start­ing with the le­gal ones.

Sev­eral econ­o­mists have pro­posed that patents be re­placed with prizes. For ex­am­ple, a com­pany that spent $100 mil­lion re­search­ing a new drug might re­ceive a check for $500 mil­lion from the trea­sury af­ter the drug was ap­proved. The mul­ti­plier would pre­serve the in­cen­tive to in­no­vate while pub­lic fund­ing would spread the bur­den across all tax­pay­ers — who bear much of the cost of med­i­cal re­search al­ready — in­stead of con­cen­trat­ing it on the much smaller pop­u­la­tion of sick peo­ple who need a par­tic­u­lar drug but may be the least able to af­ford it.

Drugs would then sell cheaply at phar­ma­cies be­cause all man­u­fac­tur­ers would be free to make and sell all ap­proved med­i­ca­tions. It’s time to ex­plore this op­tion, which would work for old drugs and or­phan drugs, too.

Trump will have to tackle shady mo­nop­o­lies. To do this, he’ll have to put pharma com­pa­nies in the crosshair of the an­titrust divi­sion of the Jus­tice Depart­ment. That’s not a pop­u­lar idea in Repub­li­can cir­cles, but as long as drug com­pa­nies know they can col­lude, prices will re­main high.

Right now, Trump is scor­ing points by us­ing his pul­pit to bully pharma com­pa­nies. But we’ll know that he’s se­ri­ous about get­ting prices un­der con­trol when he tack­les drug mo­nop­o­lies.


Jef­frey Aronin of Marathon said de­flaza­cort would cost $89,000 a year in the U.S. The mus­cu­lar dys­tro­phy drug costs $1,000 a year else­where.


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