An oncologist's explanation for unaffordable drug prices

Dr. Hagop Kantarjian is an oncologist who spends his days treating leukemia patients at Houston's M.D. Anderson Cancer Center and conducting research to develop new treatments.  His humane concerns and interest in public policy came to light in a study he authored this month for the Mayo Clinic Proceedings, titled, "Why Are Cancer Drugs So Expensive in the United States"?

The fact that engaged Dr. Kantarjian's interest and disapproval was that prices for cancer medications increased from an average of $5,000 - $10,000 before 2000 to more than $100,000 by 2012, during a time when average household income in the U.S. fell by 8%.  An increasing proportion of his patients became unable to afford their medications, even though taxpayers fund 85% of cancer research in this country. 

Kantarjian's travels overseas also showed him that the U.S. pays 50-100% more than other advanced countries for the same medications. Overall, health care consumes 18% of this country's GDP, contrasted to 5-9% for the European countries. Yet the outcomes here are worse, according to numerous sources such as the Commonwealth Fund, the Institute of Medicine, the World Health Organization and others.

The reasons for these sad state affairs were not difficult for Kantarjian to locate.  The red thread running through all of them is that the U.S. operates a for-profit health care system.  This need to pursue profit drives all of the arguments that pharma uses to justify its exorbitant prices.  Kantarjian examined every one of those justifications for high prices and found each to be incorrect or blatantly misleading.

For decades pharma's trade association, the PhRMA, has trotted out the excuse that the high costs of R&D require the drug companies to charge steep prices. Kantarjian shows that explanation to be nonsense. The actual out-of-pocket costs for developing a real drug are no more than 10% of what the industry claims.  Kantarjian also refers to the studies of Nobel laureate Joseph Stieglitz and other economists that demonstrate how pharma behaves as a classic, oligopoly cartel with only negligible pricing competition. Drug prices are high, according to the economists, mainly because pharma possesses the economic muscle to keep them that way. In fact, this lack of price competition amounts to the functional equivalent of "monopolistic agreements."

Kantarjian next goes on to show that higher profits for drug companies do not result in better drugs. Instead, he concludes that, "High profits are often channeled toward higher salaries and bonuses of drug companies’ CEOs, not invested back into cancer research."

Legislation advanced by pharma's lobbying has also contributed to the industry's price gouging.  Kantarjian explains how the 2003 Medicare Prescription Drug Improvement and Modernization Act forbade Medicare from negotiating drug prices. 

While oligopolistic behavior and backroom legislation benefitting pharma are the main reasons for overpriced medications in this country, Kantarjian discusses several other culprits.  These include branded pharma's efforts to delay the appearance of cheaper generics (through such tactics as "patent evergreening,"  "pay for delay," and "approved generics") and the industry's use of political connections to prohibit drug re-importation from Europe and the Commonwealth countries.

Finally, among several other reasons that Kantarjian mentions for overpriced medications, he includes the fact that physicians and patient advocacy groups have remained largely tame or even indifferent to the matter. 

As high drug prices put treatment beyond the reach of many Americans, Kantarjian maintains that as the Hippocratic Oath binds physicians, they have a moral obligation to advocate for affordable drugs. 

Patients and those groups supposedly organized to advocate on their behalf should recognize that they are fools to accept the market as the ultimate authority for deciding prices and other elements of health care allocation.  Instead, Kantarjian believes these decisions must be based on "fairness," which he defines as pricing in which profit does not jeopardize affordability to patients and the country. 

Such fairness, according to Kantarjian, was in fact part of pharma's historic mission, which its current pricing practices have abandoned "in favor of maximizing profits regardless of the potential consequences to patients." 

So in past decades, pharma possessed a kernel of social responsibility and fellow feeling. Unfortunately those qualities have become anachronisms under the chief financial officers who direct operations at pharma companies today. Their exclusive interest lies in bowing to hedge fund short sellers and similar Wall Street interests.

The important question is whether and how pharma can retrieve fairness from the scrap heap and, once again, make it the principal part of its mission.

Any suggestions? 


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