The truth behind why Daraprim can cost whatever its CEO wants it to

A greedy, cocksure CEO set off a nation of people tired of mysterious and unchecked drug pricing.

Have you ever suspected that drug manufacturers have been given complete license to charge whatever they want?

You wouldn’t be wrong.

Since he got us talking about this, we have to thank Turing Pharmaceuticals CEO Martin Shkreli. He raised the price of the drug Daraprim from $13.50 to $750 per pill.

The justification for the cruel hike?

It’s a more appropriate price.”

GIF from CNBC.

What does that even mean? How does a drug manufacturer decide what is an appropriate price?

Well, there are a lot of missed could-be checkpoints in the American health care system that give manufacturers utterly unfettered license to charge whatever they decide.

A quote from The Economist puts into sharp perspective just how ambiguous the process is: “One economist at a closed-door session of pricing experts at [the American Society of Clinical Oncology] dryly remarked that she could find no economic theory to explain how companies price their drugs.”

As Jessica Wapner, a researcher and writer on biomedical issues, puts it in her blog: “Drugs cost what the market will bear. It’s that simple. Drug prices are set at whatever the market will bear.”

Here’s why.

Price Gouge License #1: Pharmaceutical companies can advertise directly to Americans, unlike in many other countries.

  • How many patients are buying the drug
  • How many are likely to be insured privately or through the government, or are uninsured
  • Length of an average treatment course on the drug
  • How high the stakes are for what the drug treats (desperately needed or only mildly beneficial)
  • How many years the drug will have exclusivity in the market (meaning no generics)
  • Budgeting for patient assistance programs (“If you can’t afford your medication, drug company X may be able to help”)
  • That’s right. Those drug assistance programs aren’t a kindly, out-of-their-own pockets, benevolent gesture. The companies get their money for them they just tack it on top of what they’re already charging.

    FUN FACT: There are special forecasting companies that help drug manufacturers evaluate the field and arrive at complex equations regarding prescription prices.

    Price Gouge License #5: Many consumers are shielded from the reality of drug prices because of insurance.

    That means they keep buying the drug even if their copays go up (making concessions in other parts of their budget as long as they can), which reinforces to the manufacturer that their pricing practices are working. People will just pay it. They will find a way. And though some can’t or don’t find a way and sometimes wind up giving up lifesaving drugs out of financial defeat the sheer numbers don’t usually rise to the proportions needed to signal to drug companies that they’ve made a pricing error.

    Because they’re still making a profit.

    The highest performers in the health technology category in 2015 were Pfizer, Merck, and Johnson & Johnson.

    Read more: http://www.upworthy.com/the-truth-behind-why-daraprim-can-cost-whatever-its-ceo-wants-it-to?c=