Pharmaceuticals have made the news a few times in the past year for extortion pricing of life-saving drugs. First it was AIDS medication, and more recently EpiPens were the center of attention.
But anyone who has filled a prescription in the last half decade knows that price hikes aren’t limited to these two cases. In fact, research has shown a sharp rise in the cost of medication in the U.S. since 2007. So, what is really causing these hikes? Is big pharma just pushing price points as far as they can, or are other factors contributing?
Medical Spending
The classic response from pharmaceutical companies has claimed that the cost of researching and developing medication is what drives the prices at the drugstore. It turns out that there may be some truth in that claim. Medical research is very expensive, and the U.S. still contributes roughly half of all research spending across the globe.
On top of that, the bulk of U.S. spending really does come from private investment. Of the near $150 billion spent annually in the U.S., more than $70 billion comes from private investors and pharmaceutical companies, while less than $50 billion comes from government spending. The rest of the funding comes through various other sources, such as non-profit research contributions.
Going back a few years paints an even better picture. In 2007, private investment was over $80 billion in the U.S., and American research accounted for more than half of all global contributions. The past ten years have seen a 13 percent drop.
In the meantime, Asian countries, mostly China, have picked up the slack. It should come as no surprise that China surged in this market, just like many more in their recent economic boom. Looking forward, the world might expect less spending coming from the giant country, as their economic situation is tenuous at best.
It’s also worth noting which countries are absent from increased research spending. Canada and the bulk of the EU have seen almost no growth in spending for roughly 15 years.
Just as experts have been explaining for the past 20 years, single-payer and universal health care systems lead to stagnation. Without competition, providers aren’t able to push earnings or profits, so there is never an incline in research. The result is that free economies like America pick up the bill to literally save the lives of the rest of the people on the planet.
Big Pharma
So far it looks like the situation is global, complicated and out of the hands of the pharmaceutical companies that have been so lambasted. They are not entirely without blame in the situation. After all, the cut in U.S. spending has mostly been their decision, and even though a lapse in Chinese spending might raise their global rank, there are no signs that pharmaceuticals are planning to dramatically increase research budgets anytime soon.
Remember how research spending has mostly dropped since 2007? Part of that can be attributed to the recession conditions, but healthcare was the industry that stayed most profitable in America throughout the recession years.
What else changed since then? In a word: Obamacare.
Restructuring the insurance system had major impacts on how healthcare companies get paid. More conditions and treatments were given mandatory coverage, and as a result, pharmaceutical companies and other providers saw an opportunity to guarantee their profits.
The reason the biggest price hikes have been on life-saving medication—like the EpiPen—is precisely because they are more likely to be covered. Of course, that leaves uninsured persons completely without help and unable to afford medicine that would otherwise keep them alive, and this is where the innocence of the medical industry is stripped away.
The solution they found to maintain profits and continue their research contributions was to exploit insurance coverage at the real cost of human life.
There’s another trend that further casts shade on these companies. Besides cutting investments in the first place, there has also been a major shift in how they spend money. More than half of all investment is now in late stage research, or research aimed at human testing and marketing.
Early stage research is when most of the scientific study happenings, breaking down root causes and potential treatments of health problems. This shift in spending is further demonstration that pharmaceuticals are choosing their bottom line over advancing medicine.
So why is medicine expensive?
The three biggest factors are social health care countries that can’t pull their own weight in contributions, the U.S. government changing how money is distributed in healthcare and pharmaceutical companies choosing the bottom line over patient care.
As dark as it all sounds, and as reasonable as outrage is, the situation is far from desperate. An educated people can use the court of public opinion to keep the big companies in line, and several countries in Europe are making large strides to move away from single-payer systems.
Regards,
Ethan Warrick
Editor
Wealth Authority
