Drug prices balloon in the US

Some drug prices have increased significantly in the first three months of 2019. The rise comes amidst intense attention on the American pharmaceutical industry. 

Background

The pharmaceutical industry as we understand it today has its origins in the second half of the 19th century. The outcomes of the Scientific and Industrial Revolution were fused to benefit human health. This was done by scientifically discovering, developing, producing and marketing drugs for medicinal uses. Typically the pharmaceutical industry is subject to a variety of laws and regulations that preside over its patenting, testing, safety, efficacy and marketing. 

The United States is the largest pharmaceutical and biotechnology market in the world, accounting for approximately a third of the global market. American firms pour over US$75 billion into pharmaceutical research and development, resulting in the nation holding intellectual property rights on most new, cutting-edge medication. The industry accounts for more than US$1.3 trillion in economic output, roughly 4% of total US output. Over 800,000 people work in the biopharmaceutical industry, although the sector, directly and indirectly, supports over 4.7 million jobs in the United States. The comes is therefore of primordial importance to American authorities, as well as to profiteering pharmaceutical companies. 

The pharmaceutical lobby in the United States wields considerable influence in American politics, seeking to secure favourable outcomes for the industry. Research indicates that the largest pharmaceutical companies lobbied extensively in the creation of at least 1,600 articles of legislation between 1996 and 2004, while over US$ 900 million was spent on lobbying between 1998 and 2005, in addition to donating US$ 89.9 million to federal candidates and political parties. The research also found that the lobbying groups gave three times as much to Republicans as they did to Democrats.

Analysis

During the first three months of 2019, pharmaceutical companies have raised the prices of almost 3,000 drugs in the United States, a report by the Financial Times estimates. Some drugs had received a triple-digit percentage increase in their prices. Data by RX Savings Solutions, a software company which helps its consumers lower their drug related costs, shows that the list prices of 2,683 drugs went up during the first three months of the year, 300 more than during the same quarter in 2018.

Inflation is not the cause for the increase in prices; the prices of these drugs have risen at four times the rate of inflation. Typically, to account for inflation, pharmaceutical companies increased prices during the first few days of a calendar year, but have instead opted for a “staggered” approach in 2019. 

The rises come at a time when drugmakers have been facing mounting political pressure from Washington. Drug prices have, in recent years, been dramatically increasing, often resulting in significant consumer anger. President Trump, cognisant of his voter base, had vowed to make drug prices cheaper, while simultaneously tackling “global freeloading,” where countries with lower prices have benefited from research conducted in the United States. However, the emphasis on global freeloading takes the focus away from rising prices in the sector, moving them to geopolitical issues relating to intellectual property. It is likely that given the Republican base within the pharmaceutical industry, President Trump employs his tried and true method of diversion to another, less-related issue, especially one of importance to pharmaceutical lobbying groups.

In February 2019, Congress quizzed seven executives from large pharmaceutical companies. Democrats have sought sweeping regulatory overhauls of the pharmaceutical industry, a move that is likely to find support in the House, although it is unlikely to pass the Senate given the Republican hold on the upper house. Several presidential hopefuls have voiced their support for an overhaul to the industry, setting the stage for the issue to become important to the 2020 US presidential elections. However, the price increases are unlikely to rescind in the near future, unless sweeping changes are made to the industry, also improbable given the powerful pharmaceutical lobby.

Assessment

Our assessment is that rising drug rates in the US are unlikely to ease, given the current political climate. We believe that the issue of rising drug prices will continue to receive attention, although President Trump will likely adopt diversionary tactics in order to move focus from the issue at hand. We also believe that the pharmaceutical industry will receive significant attention during the 2020 US presidential elections. 

India Watch

India has recently garnered the ire of President Trump, as a result of its relatively cheaper medical costs. Issues of intellectual pharmaceutical property rights are likely to be exacerbated between the two countries, especially if domestic conditions require such a move from President Trump.  

Image Courtesy - Myself [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0/)]