Rising drug prices and the Hillary nomination

by Daniel R. Hoffman, Ph.D.

Published Jun. 8, 2016, 5:09 p.m. ET

Here's something that should disappoint anyone who likes to think of himself or herself as a fair-minded person. One June 1 Pfizer, the world's second largest, pure-play pharma by revenue, raised the median prices of its 100-plus drug products by 9.4%. This follows another 9.4% median price increase for the entire product line on January 1. For all of last year, Pfizer's across-the-board, median price hike was 16%.

Granted, these increases were before discounts and rebates, but most observers believe that the realized net growth of Pfizer's prices is slightly less than half of these list price increases.

So during a time when the cost of living has been growing at roughly 2.5% and wages somewhat less than that, Pfizer has raised the real prices of its drugs by almost 10%.

In the online Health Affairs last week, Princeton's Uwe Reinhardt made a good case in econospeak that the pharmaceutical industry is a reverse Robin Hood — robbing the sick, the poor, and the elderly, then giving the money to its C-suite and Wall Street investors.

He calls this process "value shifting," which he contrasts to legitimate "value creation." The latter occurs when new companies create previously unavailable, valuable products and even when established companies introduce new products that represent genuine improvements. But the pharmaceutical industry, according to Professor Reinhardt, has taught the world in recent years that "modern capitalism can also play a more dubious role by merely redistributing wealth from some members of society (for example, sick people) to the shareholders of particular enterprises, without making any net contribution to overall social value."

Pharmas argue that they spend these incremental revenues on R&D, but Reinhardt responds by noting that they actually spend a noticeably higher percentage of their sales revenues on marketing and advertising.

Increasingly the pharmas spend a fair amount of their additional cash on share buybacks, but here Reinhardt quotes a management study that found such buy-backs usually do not create value even for most shareholders, let alone for the overall economy.

Pharmas also use some of this added revenue that they extort from consumers and taxpayers to buy other pharma companies. They justify such acquisitions to the public and regulators as enhancing efficiency, but Reinhardt argues that the reality, as shown by economic research, is "that consolidation on the supply side of the health care sector has served to drive up prices. It is another way of saying that it supports value shifting, rather than value creation."

Now that Hillary Clinton has all but officially become the Democratic nominee for president, anyone who disdains the enormous and growing disparity between the rich and everyone else in the U.S. (which is as bad or worse than Europe before World War I) should be saddened by her nomination.

Hillary and Bill Clinton are preeminent value shifters. During the 1990s they deregulated financial institutions, raised the tax burden on middle and lower income Americans, and negotiated trade deals that sent millions of American jobs overseas. Their ill-conceived and mismanaged 1993-4 effort at health care reform ruined an opportunity to overhaul America's blatantly unfair health care system and took it off the table for another 15 years. Its direct legacy is the botched, half-assed Obamacare that ignores what is today an even more rapacious value shifting by pharma.

What is particularly galling is how some so-called liberals rationalize her toadying to big money interests by claiming, "she's learned."

Some putative liberals are so busy demonizing Donald Trump and/or his voters that they're not even willing to assess how much more Hillary will set back the long-term, progressive agenda.

Here's a woman who started her political life as a Goldwater Girl in 1964, became president of the college Republicans at Wellesley, and wrote her senior thesis by denouncing Chicago organizer Saul Alinsky. She then became a Democrat and married pantload Bill Clinton. As he became attorney-general and then governor of Arkansas, she started raking in money from wealthy businesses whom she represented in front of state agencies. In the current campaign she has received more money from Big Pharma than any other candidate.

In light of her history and the money interests that support her candidacy, it is only fair to ask the Hillary excusers to explain what they think she's "learned." Has she learned how to do a better job next time at hiding her crooked, pay-to-play deals with the Clinton Foundation as a front?

While some liberals deride a range of conservatives as dupes, low information voters and/or redneck bigots, the casuistry of some Hillary supporters who try to make her acceptable reveals some clever but hollow excuses that represent their willful ignorance of the American political economy.

So anyone who's dumb enough to believe Hillary will genuinely try to reverse this country's wealth/income disparity or make drugs affordable to all Americans should lay off Fox News viewers and the Tea Party. "Stupid is as stupid does," according to Forest Gump, and anyone who tries to sugarcoat Hillary as a liberal on drug costs and health care is just playing dumb.