One of the most significant struggles facing millions of Americans today is the growing cost of pharmaceuticals. According to U.S. News and World Report, U.S. drug spending is expected to exceed $300 billion in 2015, and many analysts project drug prices will continue to rise for the foreseeable future. In the wake of these price increases, a national, often politics-driven, conversation about the future of the pharmaceutical industry has once again reared its ugly head, spurred on by stories of seemingly outrageous drug price hikes.
For instance, in September, Turing Pharmaceuticals announced it was raising the price of Daraprim, one of its antiparasitic drugs used to treat infections, from $13.50 per tablet to $750.00 per tablet, an increase of 5,455 percent.
Many new drugs are now entering the market at significantly higher prices than they were just a decade ago. As explained by Jonathan Rockoff in The Wall Street Journal, “The average cost of a branded cancer drug in the U.S. is around $10,000 a month, double the level a decade ago, according to data firm IMS Health.”
The backlash against Turing and chief executive Martin Shkreli, who has since been arrested on fraud charges, has been swift and damning, with politicians, protestors, doctors, and health care advocates all accusing Shkreli of being a ruthless capitalist hell-bent on gouging sick consumers. Many called for greater control of the pharmaceutical industry. Even highly controversial Republican presidential candidate Donald Trump leveled attacks against the 32-year-old hedge fund manager, calling him a “disgrace” and the price increase “disgusting.”
Pharmaceutical companies have often blamed price hikes on ever-increasing research and development costs. It’s now estimated new drugs cost an average of $2.6 billion to develop, and the only way drug manufacturers say they can afford to navigate the incredibly complex process of creating breakthrough drugs is to raise prices on new and existing drugs.
“I would have raised prices higher,” Shkreli said in response to the criticism he has received for raising the price of Daraprim,according to Forbes.com. “That’s my duty.”
“My shareholders expect me to make the most profit,” said Shkreli, who also called the necessity of drug price increases “the ugly, dirty truth.”
In a free-market system, profit is a driving factor behind innovation, so it’s undeniable most drug manufacturers are just as concerned with profits—and in many cases more concerned—than they are with some sort of a moral crusade to save as many people as possible. Certainly, many people who work for drug companies take great pride in the many life-saving drugs created and distributed, but raising revenues will always be the biggest of the big elephants in these companies’ board rooms, and no amount of public shaming is ever going to change that.
Most Americans don’t work for pharmaceutical businesses, however, and almost everyone seems to know at least one person who is struggling today with high drug prices, who is battling a costly disease, or who needs frequent and expensive medical treatment. As a community composed of people with real families enduring tragic circumstances, many of us are primarily concerned with making medical care more affordable, so any time Americans hear individuals such as Mr. Shkreli frankly state their primary concern is to earn greater revenues, it’s natural for people to react negatively.
Like the overwhelming majority of people, I want medical care to be as affordable as possible, and I long for the day when every single person in this country receives quality care. The issue, however, is not whether affordable health care is a good goal; the point of contention is precisely how to accomplish that goal.
It’s common for U.S. leaders, such as Democratic presidential candidate Hillary Clinton, to claim the only way to lower drug prices is to create another set of government agencies that will regulate drug companies and drug prices and to impose higher taxes on businesses who they say earn too much money. But if fixing health care is as simple as signing another government agency into law, all of America’s problems would have been fixed long ago. The reality is, contrary to the promises you’ve heard over and over, we can’t regulate our way to lower health care prices.
The success of the free market hinges on the existence of as much competition as possible. When businesses are forced to compete for customers, whether they are selling television sets or pharmaceuticals, prices fall, product quality improves, and everyone is better off. Anything that limits competition, however, inevitably leads to higher prices and less innovation. Competition, not a government mandate, drives innovation.
The problem with the health care industry is that it’s not a truly free market (or anything close to it), so competition is constantly being restricted in favor of further consolidation of services imposed or necessitated by government bureaucrats and the regulations they create. Instead of competing for your business the way a cell phone carrier or car dealership would, drug companies are required to negotiate prices with massive, heavily regulated insurance companies, who in turn are subject to thousands of pages of additional government regulations.
Further, the entire health care model currently in place in the United States disconnects the consumer, drug prices, and the seller, creating the strange circumstance of having people who need products totally disinterested from what those products actually cost. Consumers, in this case, don’t actually know anything about prices unless they have no health insurance or their insurance companies refuse to take on growing costs.
Making things even more complicated is the role the government plays as a major health care provider through agencies and programs such as the Veterans Administration, Medicare, and Medicaid. These agencies further limit competition and require drug companies and health care providers to receive less compensation than they otherwise might in the free market, causing them to raise prices when dealing with private insurers and individuals.
If the government continues to move toward a more consolidated health care system where multibillion-dollar corporations and government agencies are forced to haggle with one another behind closed doors to get what they foolishly consider to be the best deals possible, which is precisely what Clinton and many of the left propose, then the cost of health care will continue to climb until prices become so high services, quality, or both will need to be reduced.
If, however, the market is liberated from the shackles of endless government rules and bureaucratic organizations, businesses will be fighting with one another to win over the individual consumer, provide the best quality products and services, and reduce costs. Yes, there will also be profits and lots of wealthy people will become wealthier while they hold patent rights, but in the end, families will win and the country will be a lot healthier. Isn’t that a Christmas wish we can all get behind?People such as Turing’s Shkreli may be primarily interested in profits, but rather than punishing him and the millions of people in the health care industry looking to earn money, the government should harness the power of those “greedy” desires and funnel the innovations that flow naturally from competition into a better world for us all. Greed isn’t good, but when greedy, self-motivated actors are forced to compete with each other, the results have been proven throughout history to be spectacular.