LETTER FROM WASHINGTON: Big Pharma has drugged greedy US politicians
by Simon Barber
2016-09-08 05:36:06.0
UNCHECKED, the medical-industrial complex is poisoning the US economy as it sucks up an ever larger share of the nation’s wealth, using its economic muscle to buy political complaisance. The only constitutional way it can be stopped is through the election of a president who will say enough is enough, backed by strong, like-minded majorities in both the Senate and House of Representatives, and, ultimately, on the supreme court.
Achieving such majorities requires countervailing campaign money. Heroic wads of it. In 2010, the supreme court’s then conservative majority removed any limit on what corporations may spend at election time to preserve or increase the rents they collect with the help of their de facto hirelings in elected office.
Hillary Clinton, the Democratic presidential candidate, wants to rein in Big Pharma, among other monied interests. Those who complain she spends more time schmoozing the mega-rich in the Hamptons than she does talking to the media need to understand she has little choice. Much of the $143m she raised in August will be spent battling for a majority in Congress to open a window for reform.
The wholesale value of pharmaceuticals bought in the US in June was $55bn, by the count of the state commerce department. That is 12%, the largest share of all goods sold that month, up 8% on the June 2015 figure. Over the same period, total manufacturing sales were down 0.4% or $2bn, almost exactly the amount by which drug sales increased. On an annual basis, the drug industry’s share went from 6.3% in 2000 to 11.5% last year.
The Wall Street Journal recently studied the Securities and Exchange Commission filings of the top 20 US drug firms. More than two-thirds attributed increased sales in the first quarter to net price increases many multiples of the inflation rate. Scarcely a week passes without a new example of industry gouging. The latest involves a company called Mylan. It acquired rights to the Epipen in 2007. Epipens inject a dollar’s worth of epinephrine, a common synthetic hormone, into patients suffering from potentially fatal allergic reactions. The devices have been around for decades.
They weren’t making much money for Merck, the previous owner. According to Bloomberg, Mylan’s margin on the Epipen in 2009 was 9%, generating $200m in revenue. By 2014, the margin was up to 55%, and revenues to $1bn. How? A massive increase in television advertising spend, from less than $5m in 2011 to $35m in 2014, helped scare up new demand.
So did the well-publicised peanut allergy death of a 7-year-old Virginia girl in 2012. Lobbied by Mylan, Congress passed a law pushing schools to keep up-to-date epinephrine injectors on hand. A year earlier, the company had donated free Epipens to 59,000 schools. Some gift. The devices have to be replaced at regular intervals because epinephrine loses its potency.
There are alternatives, but they have struggled to catch on as Epipen has become, like Hoover, a product synonymous with its category. Mylan stopped selling the injectors singly, requiring customers to shell out for packs of two, and then doubled list price per pack to more than $600.
This triggered an outcry. In Mylan’s defence, CEO Heather Bresch, daughter of West Virginia senator Joe Manchin, said she thought the price increase would not be felt by patients because their insurance would cover it. What she failed to say was that outrageous profiteering like Mylan’s is driving up health insurance premiums, forcing consumers to buy plans with higher deductibles that made them pay full freight for much of their medicine.
Bresch then took the extraordinary step of announcing Mylan would market a generic version of its own device, at half-price. Why not simply roll back the price on the identical name-brand version? Because the middlemen who negotiate drug prices for insurers and decide which drugs are covered receive rebates from drug makers for including their medicines.
Reduce the price of Epipens and kickbacks paid in the supply chain might have to fall too, leaving the middlemen with less incentive to move the product.
The system is rotten, protected by legislators who are legally bribed to block any reform that would make pricing transparent or let the government negotiate reasonable prices and regulate the excessive pricing power granted to patent holders.
Would that those obsessed with Hillary’s e-mails and the Clinton Foundation’s "appearances" could bring themselves to focus on the real scandal of state capture American-style.
Barber is a freelance journalist based in Washington
PUBLISHED IN BUSINESS DAY – NO REPUBLICATION RIGHTS
EpiPen epinephrine pens manufactured by Mylan pharmaceutical company. Picture: REUTERS/JIM BOURG
UNCHECKED, the medical-industrial complex is poisoning the US economy as it sucks up an ever larger share of the nation’s wealth, using its economic muscle to buy political complaisance. The only constitutional way it can be stopped is through the election of a president who will say enough is enough, backed by strong, like-minded majorities in both the Senate and House of Representatives, and, ultimately, on the supreme court.
Achieving such majorities requires countervailing campaign money. Heroic wads of it. In 2010, the supreme court’s then conservative majority removed any limit on what corporations may spend at election time to preserve or increase the rents they collect with the help of their de facto hirelings in elected office.
Hillary Clinton, the Democratic presidential candidate, wants to rein in Big Pharma, among other monied interests. Those who complain she spends more time schmoozing the mega-rich in the Hamptons than she does talking to the media need to understand she has little choice. Much of the $143m she raised in August will be spent battling for a majority in Congress to open a window for reform.
The wholesale value of pharmaceuticals bought in the US in June was $55bn, by the count of the state commerce department. That is 12%, the largest share of all goods sold that month, up 8% on the June 2015 figure. Over the same period, total manufacturing sales were down 0.4% or $2bn, almost exactly the amount by which drug sales increased. On an annual basis, the drug industry’s share went from 6.3% in 2000 to 11.5% last year.
The Wall Street Journal recently studied the Securities and Exchange Commission filings of the top 20 US drug firms. More than two-thirds attributed increased sales in the first quarter to net price increases many multiples of the inflation rate. Scarcely a week passes without a new example of industry gouging. The latest involves a company called Mylan. It acquired rights to the Epipen in 2007. Epipens inject a dollar’s worth of epinephrine, a common synthetic hormone, into patients suffering from potentially fatal allergic reactions. The devices have been around for decades.
They weren’t making much money for Merck, the previous owner. According to Bloomberg, Mylan’s margin on the Epipen in 2009 was 9%, generating $200m in revenue. By 2014, the margin was up to 55%, and revenues to $1bn. How? A massive increase in television advertising spend, from less than $5m in 2011 to $35m in 2014, helped scare up new demand.
So did the well-publicised peanut allergy death of a 7-year-old Virginia girl in 2012. Lobbied by Mylan, Congress passed a law pushing schools to keep up-to-date epinephrine injectors on hand. A year earlier, the company had donated free Epipens to 59,000 schools. Some gift. The devices have to be replaced at regular intervals because epinephrine loses its potency.
There are alternatives, but they have struggled to catch on as Epipen has become, like Hoover, a product synonymous with its category. Mylan stopped selling the injectors singly, requiring customers to shell out for packs of two, and then doubled list price per pack to more than $600.
This triggered an outcry. In Mylan’s defence, CEO Heather Bresch, daughter of West Virginia senator Joe Manchin, said she thought the price increase would not be felt by patients because their insurance would cover it. What she failed to say was that outrageous profiteering like Mylan’s is driving up health insurance premiums, forcing consumers to buy plans with higher deductibles that made them pay full freight for much of their medicine.
Bresch then took the extraordinary step of announcing Mylan would market a generic version of its own device, at half-price. Why not simply roll back the price on the identical name-brand version? Because the middlemen who negotiate drug prices for insurers and decide which drugs are covered receive rebates from drug makers for including their medicines.
Reduce the price of Epipens and kickbacks paid in the supply chain might have to fall too, leaving the middlemen with less incentive to move the product.
The system is rotten, protected by legislators who are legally bribed to block any reform that would make pricing transparent or let the government negotiate reasonable prices and regulate the excessive pricing power granted to patent holders.
Would that those obsessed with Hillary’s e-mails and the Clinton Foundation’s "appearances" could bring themselves to focus on the real scandal of state capture American-style.
Barber is a freelance journalist based in Washington
PUBLISHED IN BUSINESS DAY – NO REPUBLICATION RIGHTS
