Drug price extortion

One of the worst aspects of the for-profit health care system in the US (it could more accurately be called the ‘health couldn’t-care-less’ system) is the price gouging on prescription drugs. This is heartless because drug companies are taking cruel advantage of the fact that people will do anything to save the lives of their loved ones, by jacking up the prices of essential drugs far above what people in other countries pay, enabling the companies to reap enormous profits and pay their executives obscene amounts of money.

One of the culprits is a company called Gilead and in a congressional hearing of the House Oversight Committee, New Jersey representative Katie Hill grilled CEO Daniel O’Day about his excessive compensation obtained at the expense of HIV sufferers by pricing the drug Truvada at $2,100 per month, even though much of the initial funding for the drug came, like it does fror many drugs, from taxpayers,

Congresswoman Alexandria Ocasio-Cortez can be seen in front of Hill and tag-teamed with her on the questioning, pointing out that the same drug costs just $8 in Australia.

“Truvada still has patent protection in the United States and in the rest of the world it is generic,” O’Day explained, adding, “It will be generically available in the United States as of September 2020.”

“I think it’s important here that we notice that we the public, we the people, developed this drug. We paid for this drug, we lead and developed all the patents to create Prep and then that patent has been privatized despite the fact that the patent is owned by the public, who refused to enforce it,” Ocasio-Cortez said.

“There’s no reason this should be $2,000 a month. People are dying because of it and there’s no enforceable reason for it.”

Note that O’Day dangled the prospect of cheaper generic drugs in the future as a way of deflecting attention from the exorbitant prices being paid now. But those future low prices are often a mirage because drug manufacturers have many ways to delay the introduction of generics, such as making slight changes in drugs and thus extending the patent. Notice how the CEO inserted a caveat that the introduction of generics in 2020 would depend upon his company agreeing to support the introduction of generics in that year.

But there’s more. Even when the patent expires and generics can come on the market, companies conspire to fix the prices of generics to be artificially high. Selena Simmons-Duffin explains how a recent lawsuit reveals how drug companies collude to rip off people.

Connecticut Attorney General William Tong has a skin condition called rosacea, and he says he takes the antibiotic doxycycline once a day for it.

In 2013, the average market price of doxycycline rose from $20 to $1,829 a year later. That’s an increase of over 8,000%.

Tong alleges in a new lawsuit that this kind of price jump is part of an industry wide conspiracy to fix prices.

The suit is a whopper — at least 43 states are suing 20 companies, and the document is over 500 pages long. It was filed Friday in the U.S. District Court in Connecticut.

The lawsuit alleges that sometimes one company would decide to raise prices on a particular drug, and other companies would follow suit. Other times, companies would agree to divide up the market rather than competing for market share by lowering prices.

It says these kind of activities have been happening for years and that companies would avoid creating evidence by making these agreements on golf outings or during “girls nights outs” or over text message.

In several examples, the suit cites call logs between executives at different companies, showing a flurry of phone calls right before several companies would all raise prices in lockstep.

[Stacie Dusetzina, a professor at Vanderbilt University who studies drug pricing] says what this lawsuit alleges is “very disappointing” — a situation in which consumers put up with the high price of branded drugs because of the implicit promise that a generic is coming some day and will eventually bring the price down.

But that outcome doesn’t happen automatically; it relies on healthy competition and market forces to work. If there’s only one generic version available, that drug maker can set the price at pretty much the same level as the brand name.

“The higher the number of competitors, the more we see price reductions from the branded drug price,” she says. “So the magic number seems to be around four manufacturers.”

And that assumes those drug makers aren’t talking to each other and agreeing to coordinate rather than compete.

The main drug maker cited in the lawsuit is Teva, an Israeli company. In a statement, Kelley Dougherty, vice president of communications and brand, Teva North America, told NPR that the company is reviewing the allegations internally and that Teva “has not engaged in any conduct that would lead to civil or criminal liability.”

Adam Smith argued that free-market competition would lead to lower prices as companies vied to attract customers and thus benefit the public. But capitalism, American style, is where companies don’t compete but instead collude to raise prices.


  1. Holms says

    As much as I enjoyed the grilling, the comparison to Australia’s $8 price tag is not reasonable. Firstly, because the price is actually ~$40 per month, and secondly because that is only the price to the end-point purchaser, i.e. the patient. The price per unit before government subsidy is ~$300 I believe.

    I’ll grant that this does not substantially undermine her point -- USA is still being ripped off for over a thousand dollars for a month’s supply of the stuff -- but using correct numbers is surely preferable.

  2. Sam N says

    Pharma companies are one of the clear examples of the failure of the profit motive to provide good solutions. We want pharma companies that develop drugs and treatments that minimize expenditures on drugs, not maximize them. It’s a clear example of dumb-as-shit republicans and neolibs thinking free markets are the optimal solution for every damned problem. And somehow they’ve managed to infect half the US with their derpy idea.

    Why do we still not have a publicly managed pharmaceutical organization? I mean, let private enterprise compete, if the public company can’t minimize drug costs, by all means. But give them competition, and this is another example where patents (which are inherently, protectionist, and anti-free market) are a terrible idea.

  3. says

    Pharma companies are one of the clear examples of the failure of the profit motive to provide good solutions.

    Bbbbut! Free markets are more efficient! Price controls are a sign of an economy in crisis! The invisible hand of the market will fix all this real soon now!

  4. says

    By the way, if the US did have a publicly managed pharmaceutical system, it would probably use it to brew up execution drugs for the bloody-minded bastards in Texas, Mississippi, and Alabama.

  5. EnlightenmentLiberal says

    I heard that roughly 200 years ago, people in France used guillotines to solve similar problems. We need a book for how to serve the rich, Twilight Zone style.

  6. KG says

    People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. -- Adam Smith

    Yes, that Adam Smith. He’s been adopted as a totem by the scumbag right, but the reality is a lot more complicated.

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