It is unbelievable what life in the U.S. has become like for patients who are diagnosed with diabetes. A third of America (that’s roughly one hundred million people), are diabetic or pre-diabetic.
However, with insulin prices having spiked by 150 percent over the last five years, these people are taking drastic measures to survive, all the way from injecting themselves with expired insulin, to purposely developing diabetic ketoacidosis, a fatal complication of diabetes that will result in insulin injection in an emergency hospital room.
All because of what?
An insulin cartel composed of the same three companies (Sanofi, Novo Nordisk and Eli Lilly) to which the University of Toronto licensed the manufacturing of insulin to back in 1922. Nobody deserves to lose a life because they cannot afford the medication they need in order to keep it.
But, the worst part is that this not only happening with insulin—this is the ongoing situation with the entire U.S. drug industry! Drug prices are rising by the day and it is not because of innovation or production costs according to many sources and a myriad of data.
Did you know that between the years of 2005 and 2015, around 80 percent of the new patents filed were ones that were for existing drugs rather than new ones?
Why is this so, you ask?
The patent regulations in the U.S. are designed to allow companies to find “loopholes” such that as long as they make “changes” to the drugs they are selling, the patents on the drugs can be extended. Notice, there is a reason why changes has the two quotation marks around it: these drugs do not have to be improved, they just cannot be made worse off. By doing this, companies are locking out their competition because they are re-filing their patents for the drugs over and over again, preventing generic drug companies from entering that particular drug market.
Does this remind you of a certain market structure yet?
The U.S. pharmaceutical industry is a pure oligopoly in which the entire market is dominated by a small number of sellers for each drug product. This market structure creates a significant barrier to entry because since there are only a few firms dominating the industry, the firms have a strong influence over the price of the product. Despite U.S. laws against price fixing and collusion, companies follow a price leader strategy in which when the “leader” raises their prices, all of the other companies follow. With the U.S. government not putting a cap on drug prices you can see that this story does not have a happily ever after ending.
Evidently, demand for life-saving drugs such as insulin is highly inelastic because it is a necessity for those people who live with life-threatening conditions. In fact, you can say that the demand for these drugs is perfectly inelastic because no matter who the supplier is and for how much the drug is sold for, this good will not lose demand because of the value it provides to its users, right?
Although goods can have an inelastic range, eventually they become too expensive for consumers to afford, and suddenly demand goes down because consumers do not have enough monetary resources to satisfy their demand (and frankly, their need) for the product. This is currently the case for many U.S. residents, and it is being made worse off by the fact that there is a lack of availability of substitutes due to the patent regulations and the existence of an oligopoly, bringing us back a full circle to where we started.
One last area that can be investigated is the efficiency of pharmacy benefit managers (PBMs). These managers claim to be reducing insurance costs of drugs and health plans in order to make medications more accessible to all consumers. They do this by negotiating a rebate with drug manufacturers on the overall price of a large selection of drugs, but they compensate themselves by taking a chunk of the rebate. How big is this chunk? We do not know, and that is the problem. The amount that PBMs keep in their pockets from the rebate versus the savings that they pass on to consumers is not publicized. Thus, we do not know if PBMs are actually helping the case, and if they are, whether they are doing it ethically and to their maximum ability.
Why do we not have this problem here in Canada?
We often forget how privileged we are to be living in a country with free healthcare and excellent medical insurance. But how does Canada prevent the conflict of drug pricing from occurring like it does in the U.S.?
If you haven’t guessed the answer already, it’s only a matter of imposing strict controls and regulations—concepts on which the U.S. is stagnant upon. We have a Canadian review board that ensures our drug prices are in check by comparing the drug prices we set to six European countries and the United States to ensure that they do not exceed the median prices that these countries have set on their medications. If they do, a reduction in price is ordered by the board. The issue with implementing such regulations in the U.S. is that sellers engage in price discrimination because the government plays almost no role in the regulation of these drug companies and the prices they set.
So, what can be done?
- Well, firstly, a law can be passed that will allow patients to import drugs from Canada because as you and I (and everyone) knows, our drugs are much more affordable. If this is done, a substitute will be introduced, increasing supply (shifting the supply curve to the right), and lowering prices for U.S. citizens to increase affordability.
- Another law can be passed to make it easier for generic drugs to appear on the market faster. In fact, there is a set of bills that Sen. Chuck Grassley (R-IA) is working on passing in this regard.
- Drug companies can also be taxed for every price hike according to how much they raise the price of their medications to. This can potentially decentivize them from doing so, and decrease the rapid rate of drug price increase.
- Lastly, laws should be passed for all PBMs to disclose how the rebates they receive are divided. This will ensure that this money can be tracked, and that the compensation people receive for their medication is the rightful amount they deserve.
There is a recent large focus on conquering this issue in the United State’s pharmaceutical industry, and you can check out the eight ideas that Congress has published for bringing down drug prices in the U.S last month.
Change must be brought upon the U.S. pharmaceutical industry and fast. There are too many people suffering in exchange for the economic gain of big pharma CEOs. The solutions are not simple, and will require a lot of enforcement on the behalf of authorities. However, I believe the end result will justify the input. With the add-in of several regulations and bills, thousands of lives can be saved, and that is truly motivating.