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Prescription Price Gouging: Where's The Outrage?

by David Yee, published

In September, hedge-fund manager and entrepreneur Martin Shkreli made headlines when he bought the rights to a 62-year-old drug, then raised the price from $13.50 a pill to $750.

And while more Americans are becoming keenly aware of this growing practice--price gouging on existing drugs--where's the outrage?

We typically believe in the free market, where innovation is rewarded, but some of the worst price gouging is occurring in the generic market on very old drugs.

Take for instance the drug Colchicine, used for gout. Plant preparations have been used since at least 1500 BC, with it being isolated as a prescription medication in 1820 as one of the only existing therapies for gout. Benjamin Franklin introduced the crocus from which the drug is derived to North America during colonial times, as he was a frequent gout sufferer.

The old cash price of this drug: about $5 a month.

Then,Takeda Pharmaceuticals (notice, not even an American company), petitioned and was approved by the FDA to do a study on the drug, which in turn gave them exclusive marketing rights on a drug that they already knew worked!

New cash price of this drug: about $200 a month (down from over $1000).

This is an example of bureaucratic cronyism at its finest, allowing a foreign company to receive exclusive marketing rights on a drug our Founding Fathers took to alleviate pain.

Not all of the price gouging is bureaucratic in nature--some, like Martin Shkreli, are just examples of outright corporate greed.

Bayer's leukemia drug, Alemtuzumab, introduced in 2001, is pricey on its own--about $2,000 per dose. In 2008, it was discovered that this drug could be potentially used for Multiple Sclerosis, and was eventually FDA approved under the new name of Lemtrada in 2014.

Price tag: $20,000 per dose.

Now at first glance it might be tempting to think that the MS patients are given ten-times more of the drug than leukemia patients. But here's where the really disturbing part comes into play -- the dosage for MS is only about 1/3 of the dose for leukemia.

Both drugs are still being sold and both are identical, except for labels, strength, and most importantly price.

Shouldn't drug companies be rewarded for their innovation and sunk costs of research and development?

This of course is the standard excuse for exorbitant prices for new drugs, but the World Health Organization says that R&D and innovation are not the driving forces of drug costs.

According to the WHO, drug companies spend twice as much on advertising as they do on R&D (even including failed drugs). In other words, the driving force in the cost of medicine is the promotion of the drug itself.

This is forming a cyclical problem: drug companies spend so much in advertising that they have to continuously increase the prices of the medications.

Even worse, this advertising is targeted at average people -- who lack the education to know differently -- to convince their doctors to give them something that quite frankly, most of them don't have the time or desire to really fight with their patients about. In the end, drug costs go up.

In fact, the United States and New Zealand are the only countries in the world that allow advertising that directly targets the end-users of prescription drugs.

We arrest and punish other price gougers, why not the pharmaceutical industry?

After hurricanes Katrina and Rita, dozens of instances of 'entrepreneurs' being arrested and convicted for price gouging made the national news, on everything from bottled water to hotel rooms.

Why do we tolerate the pharmaceutical industry doing the same?

Instead of the free-market being the avenue for corporate reward, extended patents and exclusive marketing rights create monopolies on products that are priced primarily on embedded advertising costs.

All of this has made the American Medical Association come to the conclusion that the best way to improve both the quality of care and lower prescription costs is to ban consumer advertising of prescription drugs.

This would be a very good start, but wouldn't do much to protect consumers against older drugs being 're-branded' and jacked up in price.

Our federal, state, and local governments regulate other monopolies all the time -- electric and natural gas companies being an extremely profitable example that everyone is familiar with.

A price tag should come with being given monopoly power -- e.g. there should be upward limits on what a prescription drug company can charge.

Photo Credit: txking /

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