September 30, 2015
By Karl Thiel for BioSpace.com
Martin Shkreli is not a popular guy. Try Googling his name alongside just about any insult you care to imagine, and you’ll surely get some hits. And I’m talking about articles from at least semi-legit press outlets (I’m particularly fond of the new neologism “douchebro.”) The ousted former CEO of Retrophin, now head of Turing Pharmaceuticals, has long been at biotech’s narcissistic fringe. But his most recent antics may end up costing the entire pharmaceutical sector billions in profits—or at least, that’s likely to be a widely held perception.
You’ve undoubtedly heard about Turing acquiring Daraprim, a 60+ year-old antibiotic, and promptly jacking up the price 50-fold, from $13.50 a pill to $750 (it cost only $1 a pill as recently as 2010). I won’t get into Shkreli’s tiresome doublethink on how this is an “altruistic” move that puts patients first. The wider point is that it captured the attention of Democratic candidate Hillary Clinton, who tweeted that “Price gouging like this in the specialty drug market is outrageous.” The next day, her campaign released a fairly detailed plan on how she would go about combating high drug prices.
I don’t want to feed Shkreli’s inflated sense of importance by suggesting he was the actual cause of this—Clinton’s plan bears a striking resemblance to that of her rival Bernie Sanders, and was doubtlessly forthcoming anyway. But as a poster child for greed in the industry, Shkreli will certainly make a good talking point for any legislation that starts working its way through Congress. While we wait to see if that ever happens, we can ponder another question: Is Hillary Clinton setting herself up as an anti-pharma candidate?
Not So Fast
That remains to be seen, but at this point the alarm reflected in the stock market over the past week or so looks overblown. Her plan really doesn’t offer much in the way of surprise, while history suggests that Clinton has a distaste for price controls, at least in their strictest form. As far back as 1993, when she helped guide a failed healthcare reform plan for President Bill Clinton’s first administration, she talked about “price gouging” and “unconscionable profiteering” in the industry. Yet that plan didn’t actually seek to put any sort of price controls on drugs. (It proposed a “National Health Board” that would encourage “reasonable pricing” of prescription drugs and would specifically look at pricing on “breakthrough” medicines, but had no power to roll back or otherwise set prices.)
The centerpiece of Clinton’s new plan is allowing Medicare to negotiate with drug companies on prices—something she has advocated since at least 2007, when she voted in favor of a House bill that would allow exactly that.
Here’s a key point: That bill failed in a Democratically controlled Congress. Expecting a Democratically-sponsored healthcare reform bill to pass in anything like the current Congress looks like a longshot to say the least.
Nor do you have to wait for a hypothetical Clinton Administration to see how this plays out: The Obama Administration floated this proposal again back in February as part of the 2016 budget. It went nowhere.
Resistance to the idea comes down not only to ideology but to the power of the pharma lobby. Pharmaceuticals and insurance represent the number one and two industry lobbies by spending, and they are very effective. While at first blush they appear to favor Republicans—that’s where about 64 percent of the money has gone since 1990—in truth they just favor power-brokers. Their spending is focused on the members of key Congressional committees, and these have mostly been led by the GOP over the past 20 years. When Democrats took over leadership in 2007-2009, pharma’s spending priorities changed. Don’t expect anything to happen without pharma being heard loud and clear.
Even if Medicare were to negotiate prices, however, pharma would likely be left with a lot of pricing power. Dusting off some old conservative talking points on why it’s a bad idea to negotiate prices, I think I can boil the arguments down to this:
1. If a program the size of Medicare is “negotiating,” it’s effectively just setting prices. There’s certainly some truth to that, although I think you’ll find universal preference among industry for negotiation over a pricing committee. Medicaid, for instance, does its negotiations on the basis of what drug manufacturers charge other payors, which actually gives drug companies lots of control.
2. If pharma has to lower prices for Medicare, it will just raise them for private payors to compensate. Prices will actually go up. That would certainly be good news for pharma execs and their shareholders. But if pricing is that fluid between public and private payors, we should reach equilibrium quickly—see point one.
3. Lowering prices will impede research and development. I’m not sure how this squares logically with point two, since this criticism assumes overall prices and profits actually do go down. It further assumes that the U.S. is the only market and drug companies can’t do what they should have been doing all along—charging more to other countries and putting less of the global R&D burden on the backs of Americans. Still, if companies do see margins squeezed somewhat, R&D isn’t the only cost lever they have to pull.
None of this is to suggest that industry is going to welcome price reform. They may not like the idea—and indeed, their behavior over the past several years has been a logical reaction to the rules they are playing under. But pricing has become increasingly shortsighted, with industry virtually begging for a legislative fix. If they don’t want something along these lines to become law, they need to rein in excesses on their own—and make sure that guys like Shkreli truly represent the fringe.
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